OF GH

NK A
BA

NA
E
S T. 1 9 5 7
Statistical Release

VOLUME 3 NO. 5. October 2003

INFLATION OUTLOOK AND MONETARY AGGREGATES

Inflation Analysis

1.0 Headline Inflation

For the fourth consecutive month beginning April 2003 when inflation peaked at 30.0
percent, the headline rate of inflation has recorded some declines, edging downward to 27.7
percent in August 2003.

The Ghana Statistical Service (GSS) reported a decline in the overall consumer price index of
0.3 percent in August 2003. This was the combined effect of a decline in the food price
index of 2.3 percent and an increase in the non-food index of 3.7 percent.

OVERALL INDEX [month-on-month growth]

Average Quarterly Growth Rates
Jan-Mar Apr-June Jul Aug Sept Jul-Sept
Avg. Avg. Avg.

1998 2.7 3.0 -1.3 0.2 -0.9 -0.7

1999 2.2 1.9 0.9 -0.4 -1.1 -0.2

2000 2.7 3.2 2.8 3.3 3.4 3.1

2001 3.0 2.0 1.3 1.1 0.5 1.0

2002 1.5 1.3 1.2 0.7 0.2 0.7

2003 5.8 1.2 0.7 -0.3 NA NA

NA= Not Available

STATISTICAL RELEASE VOL. 3 NO. 5 October 2003

 The numbers for August show that the monthly drop in the overall index has been the
second sharpest since 1998. Apart from the first quarter of 2003 when the average monthly
growth in consumer prices averaged 5.8 percent, mainly influenced by the petroleum price
adjustment effect, developments in the second and third quarters have showed evidence
that inflation is being subdued.

Rural-Urban Inflationary Trends

In terms of the rural and urban contribution to prices, the downward movement in the year-
on-year rate of inflation for August was driven mainly by declining food prices in the rural
sector of the economy. Annual Inflation in the Urban Centres dropped from 29.9 percent
reported in July 2003 to 28.3 percent for August 2003. A marginal decline in the year-on-
year growth of urban prices saw the rate of inflation falling to 27.1 percent, down from the
rate of 27.8 percent recorded in July 2003.

Rural- Urban Inflationary Trends [Jan-2002 to Aug-2003]

35

30
28.3
27.7
27.1
25

20
percent

Rural Inflationary Trends

15
Overall Inflation

10 Urban Inflationary

0
Jan 2002

Feb "

Mar "

Apr "

May "

Jun "

Jul

Aug "

Sep "

Oct "

Nov "

Dec "

Jan 2003

Feb "

Mar "

Apr "

May "

Jun "

Jul

Aug "
"

"

period

2.0 Trends in Core Measures of Inflation

The three main measures of the core movement of inflation showed that INFXEU (inflation
less energy and utility price changes), dropped from 23.8 percent in July 2003 to 22.6
percent for August 2003.

INFXEUF (which excludes price changes of energy, utility and three food items1), showed
that inflation went down by 0.93 percent to 21.2 percent for August 2003.
INFXEUFT, (which excludes price changes of energy, utility, three food items and
transportation charges), also showed a decline in the monthly rate of inflation by 0.93
percent to 21.2 percent.

1
The three food items excluded in this case are maize , yam and smoked herrings
Statistical Release Vol. 3 NO. 5/ 2003 2
 Headline Inflation Vs Three Measures of Core Inflation

35.0
Annual Inflation Target=22 percent

30.0 Headline

25.0
INFXEU
INFXEU

20.0
INFXEUFT
percent

15.0

10.0

5.0

0.0
Jul-02

Aug-02

Sep-02

Oct-02

Nov-02

Dec-02

Jan-03

Feb-03

Mar-03

Apr-03

May-03

Jun-03

Jul-03

Aug-03
period

3.0 Seasonal Analysis of the Numbers

Combined Index Seasonally Adjusted
The seasonally adjusted data for the overall CPI index for August 2003 shows no change in
the consumer price index compared with the actual outturn of -0.3 percent. The resulting
year-on-year seasonally adjusted rate of inflation is estimated at 27.9 percent compared
with the actual outturn for of 27.7 percent.

Month-on-Month Overall Inflation [ Actuals Vs Seasonally Adjusted]

Legend
1.2 SA= Seasonally Adjusted
SA, 1.0

1.0 SA, 0.8

Actuals, 0.8
Actuals, 0.7
0.8

0.6

percent 0.4

0.2 SA, 0.0

0.0

-0.2

Actuals, -0.3
-0.4
Jun-03 Jul-03 Aug-03
period

Food Index Seasonally Adjusted

The unadjusted monthly change in the food price index for August recorded a decline of 2.3
percent. This may be compared with a decline in the seasonally adjusted monthly food
inflation of 1.0 percent estimated for August 2003. The seasonally adjusted year-on-year
food inflation as at August however dropped from 25.4 percent reported for July 2003 to
21.2 percent. The actual outturn in the year-on-year growth of food prices also dropped
from 24.1 percent in July to 23.6 percent in August.

Statistical Release Vol. 3 NO. 5/ 2003 3

 Month-on-Month Food Inflation [Actuals Vs Seasonally Adjusted]

Actual, 1.7
2.0 SA, 1.6

1.5
Actual, 0.9 SA, 0.8

1.0

0.5

0.0
percent

-0.5

-1.0
SA, -1.0

-1.5

-2.0

Actual, -2.3
-2.5
June July August
period

Non-Food Index Seasonally Adjusted

After adjusting the non-food price index for seasonality, the seasonally adjusted series
indicated a monthly rise of 3.7 percent for August 2003 compared with the actual monthly
rise of 3.7 percent. On a year-on-year basis the seasonally adjusted series saw non-food
inflation increasing marginally from 31.4 percent reported in July 2003 to 33.8 percent.

Non-Food Inflation [ Actuals Vs Seasonally Adjusted]

Actuals, 3.7 SA, 3.7

4.0

3.5

3.0

2.5

2.0

SA, 1.2
1.5

Actuals, 0.6
1.0
SA, 0.4

Actuals, 0.2
0.5

0.0
June July August

4.0 Developments in Monetary Aggregates

4.1 Reserve Money

Reserve money (RM), defined to include currency outside banks, banks reserves and non-
bank deposits, continue to show a down ward trend since the beginning of the year. From a
year-on-year rate of 42.6 percent recorded for December 2002, RM growth declined to 30.7
percent by the end of the first quarter of 2003 and then subsequently rose to 38.7 percent
by the end of June 2003. By the end of September 2003, provisional estimate for RM
growth showed a further decline from the June position by 3.9 percent to 34.9 percent.
Statistical Release Vol. 3 NO. 5/ 2003 4
 Reserve Money Growth (January 1996 to Sept. 2003)
RM Growth, 12-month moving average
RM Growth
90.00

80.00

70.00

60.00

50.00
percent

40.00

30.00

20.00

10.00
Provisional Reserve Money position as at September 2003

0.00
Jan-96

Aug-96

Mar-97

Oct-97

May-98

Dec-98

Jul-99

Feb-00

Sep-00

Apr-01

Nov-01

Jun-02

Jan-03

Aug-03
The declining growth rate of RM observed so far, has been driven by the large drop in
BOG’s net claims on government. As at the end of the period under review, the entire Net
Domestic Assets of the Bank of Ghana had declined by 97.8 percent from the same period
in September 2002, being influenced mainly by a reduction in BOG’s net claims on
government of about 53.0 percent.

Sources of Growth in Reserve Money (RM): BOG

September 2001 to September 2003 (in billion Cedis)
Sept-2001 Sept-2002 Sept-2003 year-on-year growth
Sep-02 Sep-03

Net Foreign Asset -222 282.4 5065.0 227.2 1693.6

Net Domestic Asset 3382.4 3531.7 79.3 4.4 -97.8

Claims on government (net) 2520.1 2939.3 1380.2 16.6 -53.0
Claims on DMB's (net) 544 10.4 -579.0 -98.1 -5667.3
Claims on public sector (net) -73 -95.2 16.2 30.4 117.0
OMO Sterilisation Account 0 0.0 -1811.1
Other items (net) 391.3 677.2 1073.0 73.1 58.5
Reserve Money(RM) 3160.4 3814.1 5144.3 20.7 34.9
Currency 2369.3 2955.4 4153.6 24.7 40.5
DMB's reserves 763.1 756.6 943.3 -0.9 24.7
Non-bank deposits 28 102.1 47.4 264.6 -53.6

4.2 Broad Money Growth (M2+)

Statistical Release Vol. 3 NO. 5/ 2003 5

 The declining trend observed in the year-on-year growth in M2+ continued in August 2003.
By the end of the first half of the year, the year-on-year growth in M2+ had declined by 7.5
percentage points from 50.0 percent recorded in December 2002 to 42.5 percent by the end
of June 2003. By the end of August provisional available data shows a decline in M2+
growth of 3.5 percent on the June position to 39.5 percent.

Ghana: Trends in Total Liquidity (M2+)

60.0

50.0 Dec-02: 50.0%

40.0
Aug-03: 39.5%
Provisional
ercent

30.0
p

20.0

10.0

M2+, 12-month Moving Average

Total Liquidity
(M2+)
0.0
Ja

Ju

Ja

Ju

Ja

Ju

Ja

Ju

Ja

Ju

Ja

Ju

Ja

Ju

Ja

Ju
p

p
ct-96

ct-97

ct-98

ct-99

ct-00

ct-01

ct-02
n-9

l-9

n-9

l-9

n-9

l-9

n-9

l-9

n-0

l-0

n-0

l-0

n-0

l-0

n-0

l-0
r-96

r-97

r-98

r-99

r-00

r-01

r-02

r-03
6

3
6

3
The slowdown in the growth of M2+ for the year so far has been aided to a large extent by
the slowdown in the growth of the net domestic assets (NDA) of the entire banking system.

6.0 Conclusions
The headline rate of inflation has fallen from a high of 30 percent in April 2003 to 27.7
percent by the end of August 2003. The various core measures of inflation also show
inflation in the range of 21.2 percent and 23.5 percent. These developments have been
underpinned by slower monetary aggregate growth alongside prudent fiscal policy
measures.

Forward-looking surveys indicate that inflation expectations are shifting downwards.

Nevertheless, there continue to be downside risks inherent in world oil prices, and exchange
rate realignments of the major international currencies, especially the US dollar / Euro rate.

Statistical Release Vol. 3 NO. 5/ 2003 6