AN EXAMINATION of recent data on inflation released by the Ghana Statistical Service as well as exchange rate data reported by the Bank of
According to the BoG, the exchange rate has remained fixed at this rate over the last three months. A simple look at the interbank market exchange rates indicates that the cedi has not only been depreciating daily, but is currently trading between GH¢3.7 and GH¢4.1 per dollar with an average of some GH¢3.8 per US dollar.
Table 1 above shows US $ quotations from a sample of 13 Banks on
Price should normally increase when demand exceeds supply but this is not what we are observing in the BoG forex market. It is on the basis of this fixing of the exchange rate by the BoG that the Minister of Communications (on behalf of government) claims that the cedi has only depreciated by some 22.9% in 2014 and not 40% as reported by the Financial Times of
This claim by the government was a rather embarrassing rebuttal because the cedi has actually depreciated by some 40% in 2014 using the interbank rates or the forex bureau rates and the whole world knows it. At the end of
The Bank of
Also, a look at the reported inflation numbers suggests that something is not right. The rate of increase of prices in 2014 by our collective experience is clearly the highest in recent times, underpinned by the 40% depreciation of the exchange so far this year, increases in petroleum, utility and transportation prices, etc. The prices of most goods and services have virtually doubled and continue to increase daily.
This notwithstanding, the Ghana Statistical service data on inflation suggests that price increases in 2014 are slower than they were last year (2013). Between January and
Almost every individual, household, business would tell you that prices are increasing much faster this year than has been observed in many years. So why is the Statistical Service data not capturing this? In 2008, when the depreciation for the entire year was some 20%, half the rate that it is currently, inflation for January to July increased by 5.5% (from 12.81% to 18.31%). During this period, petroleum prices for example increased by just 1.03%. In January to
Something is not quite right and the GSS should take another look at the numbers and procedures to make sure they are capturing price developments adequately. In response to the economic fundamentals, interest rates on the money markets have also increased significantly this year. Notwithstanding the massive exchange rate depreciation and increase in interest rates, inflation has only increased marginally.
As I have pointed out before, Whenever you have exchange rate depreciation and interest rates moving in one direction and inflation appearing unresponsive to these movements, such a disconnect should be a cause for concern. The statistics on exchange rates from the Bank of
We need reliable data to manage the economy prudently. If the data is wrong, important policy decisions based on such data would be wrong. It is therefore important that when we observe such situations we point them out so that corrective actions can be taken to save all of us from suffering the adverse effects of wrong policy decisions based on such unreliable data. I know that I risk sounding like a broken record on this issue but a broken record is always better than a broken economy.
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