“We don’t seem to understand what is driving our inflation” – Dr Yamson

Economist and Corporate Governance strategist, Dr Ishmael Yamson, has said managers of the Ghanaian economy seem not to understand the factors driving the country’s inflation.

According to him, the policy rate hikes by the Central Bank, although the right thing to do given the increments in inflation rate, will not suffice in curbing inflation.

He states that, the policy rate hikes by the Central Bank instead of driving down inflation, will rather lead to further increments in inflation.

This is because, the policy rate increments by the Central Bank will result in higher interest rates on loans for businesses, this, he opined will add to the cost of production thereby increasing costs of goods produced and subsequently prices of goods on the market, thereby resulting in further increase in inflation.

To prove his assertion, Dr Yamson pointed to the fact that Producer Price Index (PPI) for the month of April rose to 31%.

“The BoG has done well in managing inflation, it has done what it is supposed to do by rising policy rates to curb inflation, but the fiscal aspect of the economy is not helping.

“What surprises me is that we don’t seem to understand what is driving our inflation. Our PPI rose to about 32% in April and that is definitely going to drive consumer price. So the question we need to ask is what is driving the PPI?

“A lot of prices of goods have gone up by 500%, 600%, freight charges from Asia, Europe etc have quadrupled and those are the things feeding into the inflation, so raising your interest rate is really not what is going to solve the issue because it is being largely driven by imported inflation.

“We don’t produce wheat and the price of what bread has gone up, and you say let me increase interest rate, when you do that, will you really be able to solve that problem,” he opined during an interview on PM Express Business Edition monitored by norvanreports.

Speaking further on the issue, he noted that unlike in the European countries where inflation is being driven by demand and hence a policy rate hike will work there, increments in Ghana’s inflation rate are largely due to supply side inflation pressures and as such policy rate hikes will not work.

In his view, monetary policies such as the policy rate hikes should be complemented by fiscal policies to help curb the rising rate of inflation.

Headline inflation rate for the month April 2022 was 23.6%

Compared to that of the previous month, headline inflation is 4.2 percentage points higher than the 19.4% recorded in March 2022.

The month-on-month inflation between March 2022 and April 2022 was 5.1%.

Four divisions (Transport, Household Equipment and Routine Maintenance, Food and Non-Alcoholic Beverages, and Housing, Water, Electricity, Gas and Other Fuels) recorded inflation rates above the national average of 23.6% with Transport (33.5% ) recording the highest inflation for the inflation rates of all divisions).

Meanwhile, Producer Price Inflation [PPI] continues its upward trend reaching 31.2% at the end of the month April 2022.

The new PPI marks an increase of 1.9% from the previous month’s – March 2022 – PPI of 29.3%.

According to the Ghana Statistical Service (GSS), month-on-month change in producer price index between March 2022 and April 2022 was 1.1%.

The Manufacturing sub-sector, the GSS notes, recorded the highest year-on-year producer price inflation rate of 38.6 percent, followed by the Mining and Quarrying sub-sector with 35.2 percent.

The Utility sub-sector recorded the lowest year-on-year producer inflation rate of 1.1 percent.