Ghanaians are facing one of the toughest economic challenges in recent times with daily increases in the prices of items on the market. The latest inflation figures released by the Ghana Statistical Service put the inflation rate for February at 15.7 percent the highest since 2016, with housing, transport, and food being the main drivers of this inflation. Water, Housing, electricity, gas, and other fuels account for 25.4% of inflation, Transport is at 18.3% while food and Non-alcoholic beverages recorded 17.4%.  Cereal products, Oil and fats, and Water account for 20.3 %, 23.5%, and 24.8% respectively. This is higher than the February 2021 figure of 10.3%, and a 2.4% increase from last month’s figure of  13.9%.

Global oil prices have surged in the last few weeks due to geopolitical conflicts between Russia and Ukraine, while sanctions by the West have also disrupted supply lines causing major shortages of cereals on the market. Russia and Ukraine are some of the highest exporters of wheat to Africa. This could further increase the prices of items such as bread, noodles, pasta, and semolina which are amongst the most threatened food items made of wheat flour. As the specter of the Russia-Ukraine war rose last month, analysts began to warn of potential adverse effects on food prices and political stability in North Africa where expensive food has stirred a revolution before.

African economic Intelligence firm Concerto estimates that Russia and Ukraine account for nearly 30 percent of all African Wheat consumption. This is expected to pose significant challenges for Ghana where consumption of cereal items is high. It is no wonder that cereal products account for 20.3% of inflation. Again, global oil prices have surged in the last two weeks following the Russia – Ukraine crisis. A barrel of crude oil rose to as high as 130 dollars, the highest in several years, and with America announcing a ban on Russian oil imports, this further portends a challenge for global supplies. A liter of fuel is selling at 8.3 cedis at the pumps.

This could further worsen the current struggles of the Ghana cedi which has depreciated badly against its major trading currencies, the Dollar, and the British pound. In fact, the Ghana cedi was ranked the worst amongst Africa’s top-performing currencies according to Bloomberg, depreciating by 8.86 percent between January and February this year largely on account of Ghana’s heavily import-dependent economy. The cedi is today trading for 7.60 against the US dollar.

The latest pressure on the cedi, coupled with inflation is likely to see a hike in monetary policy rate which is currently 14.50 percent. The Monetary Policy Committee of the Bank of Ghana in its next sitting may likely increase the policy rate further to lower inflation and limit the supply of money. This could however affect investments and stock market activity because any further increases in the policy rate will affect interest rates on mortgages, personal loans and generally borrowing for both companies and individuals. When borrowing becomes expensive for companies they will spend less to hire or undertake product research which will reduce growth and consequently impact profits and stock prices. Individuals will also spend more to service their loans, leaving them with little discretionary spending to bolster the economy.

However, you look at it, these are not exciting times to be a Ghanaian. Considering that Ghana is a net exporter of crude oil and should come as great relief and benefit to the country in times of high prices, the country is vulnerable to price shocks because we import significant amounts of finished products which include petrol and diesel. Bank of Ghana figures at end of 2021 show an oil import bill of 2.7 billion dollars (3.8% of GDP), while exports for 2021 account for 3.9 billion dollars (5.4% of GDP). Analysts have suggested policies that will speed up the country’s renewable energy programs to further diversify the country’s energy mix and limit reliance on oil imports while a proper refinery is activated.

On the food supply side, this would mean that local production of cereals may have to step up. Filling the demand gap appears herculean a task for now seeing that foreign exchange scarcities are leading flour millers to buy dollars at higher than the Bank of Ghana rate and increasing the cost of freight for imports. Long-term measures must be put in place to make Ghana become self-sufficient in wheat and other cereal production to limit the shocks of global outcomes. These will have to take improved farming practices and a commitment on the part of the government to support local farmers. For now, statistics show that Ghana’s wheat imports for 2020/21 stood at 990,000 metric tons, a historical growth of 5%. So, while demand for wheat is growing, so is the price.