You could soon be buying a liter of petrol for 10 cedis at the nearest pump, a situation which is likely to further deepen the woes of an already volatile economy for Ghanaians. As food prices, building materials, and general household expenses soar, the only saving grace, income has remained relatively unchanged and is set to decline in value, thereby reducing the purchasing power of consumers. The latest inflation figures released by the Ghana Statistical Service put the rate of inflation for February at 15.7 percent, the highest surge since 2016.

High inflation as is being witnessed in Ghana now is seen as negative for stock market activity because it increases the cost of borrowing, costs of inputs including materials and labor, and generally reduces the standard of living.

Much of the inflationary pressure is imported, attributable to food and energy prices which have skyrocketed over the last few weeks due to the geopolitical conflict between Russia and Ukraine. The two eastern European countries are the worlds leading producers of Wheat, exporting as much as 30% of all Africa’s cereal consumption. Russia is one of the top three oil producers in the world, accounting for roughly 10% of the global oil supply.

As tensions continue to rise with no end in sight to the war in Ukraine, further sanctions by the EU and America have dealt a heavy blow to Russia’s economy with cascading effects on the global economy. Supply chains have been disrupted and a partial ban on oil imports from Russia has created shortfalls in global supply leading to record highs in brent-crude. Last week, crude oil prices breached the $100 per barrel mark for the first time since 2014. Members of the International Energy Agency, which includes the world’s biggest oil producer, the United States, agreed on Tuesday to release 60 million barrels of crude from their reserves but this has failed to quell the sharp price increases.

However, a handful of countries are expected to benefit from export windfall thanks to soaring energy and commodity prices, but unlike Ghana, which is also a net exporter of crude oil, the same cannot be said. In fact, analysts including Duncan Amoah of the Chamber of Petroleum Consumers predict that a liter of oil may hit 10 cedis by the close of the week.

Ghana is plagued by several taxes on petrol and a runaway cedi which have preceded the conflict, making it one of the most expensive places to buy fuel in Africa. Last year, Energy Capital and Power ranked Ghana amongst the top ten oil-producing countries in Africa, sharing pride of place with countries such as Chad, Equatorial Guinea, Gabon, and the Republic of Congo. Regrettably, Ghana has the highest fuel per liter cost, selling at 1.22 dollars. Even countries such as Togo, Cameroon, Burkina Faso, and Benin with very low or no oil reserves sell as low as (0.84, 1.05, 1.02, and 1.00) dollars per liter respectively. The exchange rate volatility is predicted to push the price even further to around 10 cedis a liter. Analysts have urged the government to do more by cushioning consumers with the windfall oil revenue just in case it feels reluctant to jettison some of the taxes.

As the Monetary Policy Committee of the Bank of Ghana meets next week to deliberate on the health of the economy, one of the regulator’s major concerns will be how to control inflation and end the free fall in the value of the cedi. Expectations are that the regulator will increase the policy rate which is already at 14.5% by a 100-basis point to tighten money supply and increase the cost of borrowing. This will however dampen investor interest in stocks as the rising cost of borrowing will impact business profits and lower stock prices. On the flip side, investors will demand higher interest on newly issued government securities and bonds because of the risk of inflation at the expense of buying dollars, a situation that is likely to restore confidence in the cedi.

The Bank of Ghana last week issued a 5-year bond at an interest cost of 20.75%. This has seen a slowdown in the free fall of the cedi, declining by 0.20% to the dollar at the end of last week.