Oil will influence future inflation in Ghana – Dr Kwakye

The Institute of Economic Affairs (IEA) said on Thursday that oil production would be the biggest influence on inflation in the country in future.

“Given the spending pressures expected from the oil revenue, achieving low single-digit inflation as envisaged would entail exceedingly tight monetary policy, most probably in the form of high exchange rate,” it said.

Dr John Kwebena Kwakye, a Senior Economist at the IEA, said this in a presentation at a round table on the theme: “Assessment of the inflation trends, management, and macroeconomic effects in Ghana: Examining the cost and benefits of achieving low inflation” in Accra.

The discussion was aimed at shedding some light on the issues, especially on the oil find that has generated debate in the country lately.

The discussion also examined the possible reasons behind the recent fast pace of disinflation and its potential macroeconomic cost on the country and the likely causes of future inflation.

He said the fiscal dominance and cyclical food deficits had been the main factors behind the persistent inflation in the country, adding that achieving disinflation, therefore, required that the underlying causes were addressed.

Dr Kwakye said inflation management had been less effective because of the intractability of the underlying causes, saying the decision by the Central Bank to move to inflation targeting had not helped matters much.

“Fiscal austerity has helped recent disinflation, but could also have contributed to the slowdown in the economy, especially in 2009,” he added.

Dr Kwakye also recognised the important role that the low food inflation had played in recent disinflation, pointing out that without the factor, overall inflation would not have reached single-digit inflation by now.

The economist noted that low stable inflation should be considered to be beneficial to growth and employment in the long run. This notwithstanding, there could be a short-term cost in rapid disinflation.

Source: GNA

Leave A Reply

Your email address will not be published.