Ghana’s PPI inflation speeds up to new 4-yr peak of 33.1% y/y in June 2014

By bne IntelliNews July 25, 2014

Ghana’s annual producer price inflation accelerated further to 33.1% in June, its highest level since January 2010, from a revised 33.0% in May, data released by Ghana Statistical Service showed. The increase came mainly as a result of a 37.3% y/y rise in producer prices in the mining sector, speeding up from a 35.2% y/y growth in May. Prices in the manufacturing sector, which constitutes more than two-thirds of total industry, increased 27.1% y/y last month, easing from a 27.5% growth in May. Utilities prices rose 56.9% y/y after a 56.8% y/y growth in May.

Compared to the previous month, producer prices grew 0.7% in June, easing from a 1.3% m/m increase the month before. Prices in the mining sector rose 0.7% m/m, manufacturing costs grew 0.8% m/m and utilities charges edged up 0.2% m/m.

Producer prices are a key preliminary indicator for the dynamics in consumer price inflation, so we could expect consumer price inflation to rise further after hitting a four-year high of 15% in June. Last week, Ghana’s government lifted its end-year inflation target band to 2pps either side of 13% from 2pps either side of 9.5%. It also lowered its 2014 GDP growth forecast to 7.1% from 8% and raised its 2014 budget deficit target to 8.8% of GDP from 8.5%, citing worse than expected developments in the first five months of the year, including the steep depreciation in the local cedi currency and the surging interest rates, falling gold prices, lower government revenues, and an energy crisis.

Ghana is a major producer of oil, cocoa and gold, but its economy has been recently hit by the slide in commodities prices as well as by continuous power supply deficits, in addition to governance issues. The West African country needs to address large current account and budget deficits to restore investor confidence. This should help stabilise the cedi and in turn soften inflation (that is boosted mainly by higher cost of imports).

Ghana’s central bank, which hiked its policy rate by 100bps to 19% earlier this month, predicted that the proceeds from an upcoming cocoa syndicated loan and a Eurobond issue, estimated at almost USD 3bn, would support the exchange rate in the second half of the year.

Producer price inflation June 2014, y/y June 2014, m/m May 2014, y/y May 2014, m/m
Mining and quarriying 37.3% 0.7% 35.2% 3.4%
Manufacturing 27.1% 0.8% 27.5% 1.1%
Utilities 56.9% 0.2% 56.8% 0.2%
All industries 33.1% 0.7% 33.0% 1.3%
Source: Ghana Statistical Service        

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