Ghana's national year-on-year inflation rate recently increased from 3.70% to 5.30% in a single month. Joe Jackson, Chief Executive Officer of Dalex Finance, states this rise is a warning signal, not evidence of a sustained high-inflation cycle.
Mr. Jackson urges policymakers and businesses to wait for at least one more inflation reading before drawing firm conclusions. He explained that such an increase appears more dramatic because inflation had previously reached unusually low levels. This makes any basis-point increase feel more impactful than when inflation was higher.
This advice places caution at the forefront of Ghana’s current economic discussions. Inflation remains significantly lower than the extreme levels recorded during the recent economic crisis. Yet, the upward shift has unsettled markets, businesses, and households. Many expected continued price moderation. This situation requires close monitoring of upcoming economic data to confirm underlying trends.
Speaking during a NorvanReports and Economic Governance Platform X Space discussion, Mr. Jackson highlighted the importance of a sustained upward movement. A single month’s increase might reflect temporary pressures. However, a second or third sharp rise would indicate returning inflationary momentum. This could then demand a stronger policy response from authorities. He also identified external risks as a major source of uncertainty. These include geopolitical tensions in the Middle East and environmental factors like adverse weather and El Niño.
He further noted that Ghana remains vulnerable to imported inflation. For example, rising global crude oil prices can quickly impact domestic fuel costs and transport fares. Similarly, weather disruptions can increase food prices, even with weak domestic demand. Policymakers face a delicate balance. Overreacting to one inflation reading could slow economic recovery. Ignoring early warning signs risks rebuilding inflation expectations.
Mr. Jackson applied the same call for patience to the debate over lending rates. Businesses have pushed banks for more aggressive rate reductions following lower inflation and earlier Bank of Ghana policy rate cuts. He explained that many businesses do not fully grasp why commercial lending rates adjust more slowly. Banks price loans based on future expectations, including inflation risk, borrower default risk, and overall economic direction. A bank granting a one-year or two-year loan prices long-term uncertainty.
Lending rates cannot adjust overnight simply because inflation has fallen, Mr. Jackson clarified. Banks must assess if lower inflation is sustainable. They also consider whether deposit costs are falling and if borrowers remain creditworthy. Lending rates have already declined significantly from crisis levels. Average lending rates are now moving towards 15.00%. This is remarkable for an economy that faced commercial lending rates exceeding 30.00% just 18 months ago. While the pace of adjustment may feel slow, the direction is positive. The cost of credit has fallen meaningfully, even if it has not yet reached optimal levels for private-sector investment.