The Institute of Economic Affairs (IEA), has called for a new approach to manage Ghana’s inflation in the wake of Covid-19 and the Russia-Ukraine war.
According to IEA, the approach is required because of the strong supply and cost undercurrents.
The Research Institute’s call comes after increases in transportation fares and rising food prices pushed the rate of inflation to 27.6% in May 2022, from 23.6% in April 2022.
So far, the Bank of Ghana has responded aggressively to control the prices of goods and services but IEA says the Central Bank’s response had hit a snag and not contained the inflation.
In a statement, the policy and economic think tank said the Bank of Ghana and government must work together to tame inflation rather than in separate silos.
“More importantly, the new approach requires the BoG and Government working together rather than in separate silos or pigeon holes. For this purpose, we wish to separate the management of the current inflation, which is like a fire-fighting exercise, from finding a lasting solution to inflation persistence in Ghana.”
It identifies over-expansionary fiscal policies, food supply deficits and exchange rate volatilities, as well as occasional oil price shocks, taxes and levies in the domestic price build-up, as some of the key drivers of Ghana’s inflation.
It also suggests a mixed or hybrid approach to deal with inflation and also recommended specific policies in support of the Inflation Targeting framework.
The statement on Monday, June 27, said it is necessary to augment supply, including from accessing the ECOWAS strategic stock and banning the exportation of essential items.
“Further, the government should consider providing a temporary subsidy on staples like maize, rice, and bread to ease the burden on low-income consumers.”
IEA urged the government to cushion pump prices.
“Government should try to cushion pump prices, including from its own windfall earnings from higher oil prices, the Energy Sector Stabilisation Levy Act (ESLA) fund, or reduction of some of the taxes and levies.”