Dr. Philip Abradu-Otoo, Director of Research at the Bank of Ghana (BoG), claims that Ghana's framework for targeting inflation is forward-looking.
Ghana's inflation rate climbed from 40.4% in October to 50.3% in November 2022.
The Consumer Price Index (CP1) statistics that the Ghana Statistical Service (GSS) issued on Wednesday reflected this.
Dr. Abradu-Otoo stated on Citi TV's Point of View that the central bank is not startled by the most recent inflation rate and that, according to their own forecast, inflation would reach its high in the first quarter of 2023.
"The inflation rate we observed in November was anticipated. With respect to the degree of depreciation we observed in October, inflation has just increased to 50.3%. You may recall that we predicted that inflation would continue to climb in our MPC news release. Because we took into account all of these factors, we anticipated that inflation would peak in the first quarter of 2023, Dr. Abradu-Otoo said to sit-in Point of View host Selorm Adonoo.
The BoG's Director of Research outlined how the economy's pressures on aggregate demand, cost-push policies, and other factors are mostly responsible for the present inflation. He said that the inflation rate has been challenging for the central bank.
Dr. Abradu-Otoo said, "The inflation tale typically takes many different shapes. Cost-push policies might contribute to inflation, as could the economy's overabundance of built-in aggregate demand pressures. It is driving up prices for products and services, currency exchange rates, and transportation. So, when the BoG takes a decision, we consider these inflation-related issues. The central bank has struggled with the inflation rate.
The clarification came from him in response to a question regarding the Agbogbomefia of the Asogli State, Togbe Afede XIV, who recently criticized the nation's inflation targeting.
In a 14-piece opinion, Togbe Afede said, "It is astonishing that the economists at BOG still do not comprehend that the year-over-year inflation is a historical notion and that, it is not past price increases that interest rates must aim to adjust for. My opinion is that the predicted inflation rate, with seasonality and other factors taken into account, should be used to determine the policy rate. Astute investors are primarily concerned with expected inflation, just like they prefer to evaluate shares for investments using future price-earnings (P/E) ratios rather than trailing P/E ratios.
Dr. Abradu-Otoo responded by stating that "our [Ghana] inflation-targeting system is forward-looking. Every time we establish interest rates, we take a year or more into consideration when setting them rather than basing them on prior inflation. We thus set interest rates in accordance with the one-year inflation prediction after determining that inflation will likely be 25%.
Even though he took Togbe Afede's advice into consideration about inflation, he claimed that the central bank fixing the monthly rate of inflation had its own drawbacks.
Even though he took Togbe Afede's advice into consideration about inflation, he claimed that the central bank fixing the monthly rate of inflation had its own drawbacks.
"Togbe Afede has a point. I remember him stating repeatedly that we should base policy on the monthly rate of inflation back when he was on the central bank board. He was advising against looking at year over year at the time since doing so may result in excessive interest rates that would destroy the economy.
"Set your policies and interest rates based on inflation, just look at the monthly, which is an inflation where we peaked at 5.1%. But it also has its drawbacks, according to the BoG Director of Research.