Amid the macroeconomic developments during August 2022, market watchers anticipate a 33 to 35 percent (± 0.5) consumer inflation for the month.
This will further place inflation about 3.5x over the Bank of Ghana’s upper policy target of 10 percent, and substantially well outside the long-maintained medium-term policy bracket.
Although the momentum of consumer inflation continues to cool off as depicted in the July 2022 figures – a third straight decline in the pace of inflation from a 2.2 percentage points increase to 1.9 percentage points during the period under review – the country’s projected inflation heads for a 15th consecutive increase.
Commenting on the upcoming release of August 2022 inflation figures today September 14, 2022 by the Ghana Statistical Service (GSS), Apakan Securities said: “Given the macroeconomic developments during the month, primarily the steep decline of the cedi against the USD, we project the headline inflation to print at 35 percent ± 0.5 percent”.
In July 2022, inflation climbed by 1.9 percent to 31.7 percent year on year (y/y) from 29.8 percent y/y in June 2022 – anchored on sustained cost pressures from both the food and non-food inflation baskets and the pass-through effect of steep exchange rate losses.
The persistent surge of inflation despite aggressive policy rate hikes by the central bank is indicative of a harsher multifaceted inflationary environment, the market watcher suggested.
Accordingly, the Monetary Policy Committee (MPC) of the Bank of Ghana held an emergency meeting in Aug 2022 to increase the benchmark policy rate by an unparalleled 300 basis points (bps) to 22 percent.
Nonetheless, Trading Economics in its forecast indicated an inflation rate of 33 percent for August 2022 and 35 percent by the end of this quarter.
As high as the inflation rate is, it is still in line with market expectations. In the May 2022 monetary policy report, the MPC projected the inflation rate to remain elevated above target until the second quarter of 2024. However, inflation is expected to peak at about 34% before end of the year.
Yield Curve
Considering the current climate, the market still perceives Treasury yields to continue their uptrend.
Elevated Treasury yields, with end-of-August 2022 T-bills hitting the 30 percent mark, continued to drive demand for Treasury assets – posting the best month-on-month Treasuries auction performance for the year. However, yields extended the rally with the 91-day bill surging by 234 basis points (bps) to close at 29.05 percent; while the 182-day and 364-day bills increased by 197 bps and 217 bps to settle at 30.23 percent and 30.02 percent respectively.
Generally, the yield curve maintained its flat shape with yields trending upward, especially in the front to mid, as the market remained mostly offered.
“We predict a peak in yields in the upcoming month as a result of the impact from the emergency policy rate increase to 22 percent on inflation growth,” Constant Capital, a broker-dealer stated.
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