Inflation Dynamics in Ghana

Abstract

The study sought to investigate the key factors that influence inflation dynamics in Ghana. The study found that inflation in Ghana is determined primarily by inflation persistence, reflecting price expectations, domestic food prices, petroleum prices and exchange rate. The other determinants of inflation used in this study such as money supply and world food prices weakly affect domestic inflation. The study also recommended that anchoring inflation expectations and managing exchange rate misalignment remains key policy strategies in any effort and attempt by the monetary authorities to achieving and maintaining price stability in the country coupled with moderating the negative effects of other inflation determining factors.

Impact of Market‐based Policies and External Fiscal Discipline on Ghana's Inflation

“…The result indicates a weak correlation between money supply and inflation, and between interest rate and inflation. Also, Osei () analyzes inflation dynamics in Ghana using monthly data from 2000 to 2013. According to the result, the role of money in explaining inflation has diminished overtime.…”

Exchange rate and inflation dynamics: does the month or quarter of the year matter?

“…The Monetarist interpretation emphasizes that money supply changes, with a given continual cash velocity and nominal revenue influences the general price level. This is well specified by the exchange equation or quantity theory of money (Osei 2015). Per the theory, any percentage change in money supply will translate into a corresponding proportional variation in general level of prices in a given economy.…”

“…According to the Keynesian approach, potential output is represented only as the notional short run maximum of practicable output, and perceives excessive expenditure as the basis of surplus demand hence inflation, differentiating it from the monetarist view where actual output always equals the potential output and excess money supply seen as basis of inflation. Per the Keynesian viewpoint, higher inflation is a consequence of expansion in government expenditure, increase in household consumption as well as increase in investment (resulting in increase in aggregate demand) while real output remains static (Osei 2015).…”

“…According to Myrdal and Straiten, in the context of developing countries, it is not accurate to rely on the exceedingly aggregative demand-supply model in analyzing inflation because of the non-existence of cohesive structure. Switch likelihoods between consumption and production and the uneven distribution of resources among the different sectors of developing countries make the discourse of inflation by attribution to aggregate demand and supply a problem (Osei 2015). According to Canavese (1982), the structuralist theory emphasizes that changes in relative prices result from economic structure changes, that is, for each economic structure there exist an exclusive vector of relative prices.…”

“…Most papers on seasonality of rate of inflation have focused on volatilities as exemplified by Berument and Sahin (2010), Berument et al (2001), Fasanya and Adekoya (2017) and Bataa et al (2013). Similarly, in Ghana, research on inflation have focused on investigating the factors that influence inflation dynamics, modelling inflation rates with emphasis on forecasting amongst others (see Osei 2015;Omane-Adjepong et al 2013;Nortey et al 2014;Suleman and Sarpong 2012;Barimah 2014). There has also been some level of attention to seasonality of exchange rate in the literature across the world with varied results.…”