Breaking the inflation jinx

…Abundant food is a must

The inflation figure announced by the Ghana Statistical Service (GSS) shows that August 2009 inflation rate has dropped to 19.65%, representing a decrease of 0.85 percentage points from the July 2009 figure of 20.50%.

This, according to figures available, follows a three year trend of dipping inflation between July and September.

According to the Government Statistician, Grace Bediako, the August inflation is the lowest so far in 2009, a year which has witnessed relatively high inflationary trends, with the monthly change rate of -0.69% also representing the lowest in the year.

Dr. Bediako noted that Non-Food Inflation has been higher than Food Inflation with the difference between the two still widening. Whilst Non-Food inflation was 23.25% in the month, Food inflation recorded 14.75%.

Eastern Region registered the lowest inflation of 14.48 %, whilst the Upper East and Upper West regions recorded the highest of 33.29%. The urban and rural inflation for August 2009 was 22.37 % and 18.86 % respectively.

Experts in the field are watching closely whether, Ghana can for once break the jinx by sustaining the disinflation trends beyond November.

The Government Statistician however cautioned that the drop in inflation which follows exactly the patterns of the previous three years, might not be sustainable, giving credence to the assertion by the Centre for Economic Policy Analysis (CEPA) that end-year inflation could be above 20%.

"Looking at the trend, there is no reason to suggest that the rate will go down during the last two months of the year unless food prices hold out," she added.

She said as long as food inflation picks up around the end of year, coupled with the annual price hikes in December, high inflation could resume by that period.

This assertion comes against government’s reviewed target of 14.5 % end-of-year inflation.

Head of Economic Statistics at the GSS, Magnus Ebo Duncan believes for the disinflation trends to be sustained, the factors that push up inflation especially around the end of year should be dealt with effectively.

According to Mr. Duncan, food prices are one of the major factors contributing to inflation. He observed that inflation always eases during the harvest season, “but as soon as people begin to store up food, waiting for prices to peak before releasing them onto the market, prices shoot up again.”

The economic statistician called for an all-year-round farming especially in food items that have very fluctuating prices, with inflationary consequences for the economy. “If we do this, there would be an abundant food supply all year round, thereby leaving no incentive for hoarding food.”

He explained that for that to succeed however, irrigation facilities need to be put in place.

Mr. Duncan therefore lauded government’s decision to rehabilitate 41 dams in the three Northern Regions to support dry season farming. He believes when this is done, the production of maize, rice, millet and other cereals done in those areas would receive a boost.

He also believes that food processing needs to be encouraged, while storage facilities need to be established all over the country to prevent the wastage that goes on when there is a glut in the markets.

Government’s 14.5 year-end inflation target appears to be coming on the expected abundant food supply that the Minister for Food and Agriculture Kwesi Ahwoi has been promising for this year.

In addition to the bumper harvest, government has also promised to rehabilitate all the warehouses of the defunct Ghana Food Distribution Company (GFDC) in which surplus grain bought from farmers would be stored up.

Government is also promoting a Commodities Exchange where food crop prices would be determined a la companies’ stock tradings on the Stock Exchange.

In its mid-year budget review, government released GH¢ 10.7 million for its Youth-in-Agriculture program.

In March when the budget was released, the Centre for Budget Advocacy (CBA) called for bold initiatives to insulate the nation against the food, fuel and financial crisis. They actually called for subsidies for farmers which are needed to ensure abundant food production that will make the country food-secure.

Organisations such as the General Agricultural Workers Union (GAWU) and their partners Actionaid also believe that subsidies such as the one on fertilizer, and availability of affordable financial intermediation for Ghanaian farmers would ensure massive production of food that will make Ghana able to feed her people.

Source: Financial Intelligence (Justice Lee Adoboe) also available on wwwmyfinancialintelligence.blogspot.com