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Consumer inflation has dropped by 40bps to 9.6% in July 2018 from 10.0% in the previous month, which is contrary to our expectations. We expected July’s inflation to inch up on the back of significant depreciation of the GHS against major trading currencies including the USD (-3.7%), GBP (-3.1%) and EUR (-3.9%) in July 2018.

However, Ghanaian authorities have released figures indicating that non-food inflation dropped by 50bps from 11.2% in June to 10.7% in July, which could mean that importers may not have fully passed on the effect of a weaker local currency to consumers in the form of higher prices for imported goods and services.

The development has painted a very positive inflation outlook for country given that the pace of the depreciation of the local currency, which was a key risk to inflation, has also slowed in August 2018. Inflation is now within the government’s target range of 6-10% in 2018.

In addition, the development would allow the authorities to refocus on its monetary policy easing cycle, which was temporarily put on hold on the back of higher inflation expectations. Ghana’s monetary policy easing is aimed at reducing interest rates to help address NPLs in the banking sector and boost credit to the private sector, which is championing the government’s industrialisation agenda.

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