By Ghana News

Copyright ghanamma

Ghana’s inflation rate dropped to 9.4% in September, marking the first single-digit reading in four years and prompting the Bank of Ghana (BoG) to cut its policy rate by 350 basis points to 21.5%, but economists warn that maintaining this achievement will require sustained fiscal discipline and favorable external conditions.

The September figure represents the lowest inflation level since August 2021, following nine consecutive months of declines from 11.5% in August. The Ghana Statistical Service attributes the improvement primarily to easing food inflation, which fell to 11% from 14.8% in August, alongside declining import costs.

The Monetary Policy Committee’s decision to slash the policy rate from 25% exceeded market expectations, reflecting the central bank’s confidence that inflation pressures have moderated sufficiently to allow looser monetary conditions. Governor Dr. Johnson Asiamah projects that inflation will remain within the medium-term target band of 8 ± 2% by the end of the fourth quarter.

The disinflation success stems from multiple factors working in concert. Tight monetary policy throughout 2024 and early 2025 squeezed excess liquidity from the economy. Fiscal consolidation efforts reduced government borrowing that had previously crowded out private sector credit. A more stable cedi, which has appreciated over 20% year-to-date in the first eight months of 2025 after weakening 19% in 2024, reduced imported inflation.

Yet Ghana’s history with single-digit inflation raises questions about sustainability. The country has achieved low inflation several times before, only to see it surge back into double digits when external shocks hit or fiscal discipline weakened. The 2021 experience, when inflation last touched single digits before climbing to over 50% by 2023, remains fresh in memory.

Dr. Asiamah acknowledges these risks. The central bank identifies global oil price volatility and possible utility tariff adjustments as primary threats to price stability. Both factors could quickly reverse months of macroeconomic progress if they materialize in ways that push costs higher across the economy.

Crude oil prices affect virtually every sector, from transportation and food distribution to electricity generation and industrial production. A sustained rise in global oil prices would directly translate into higher costs throughout Ghana’s heavily import-dependent economy. With petroleum products accounting for significant portions of the country’s import bill, oil price spikes create immediate inflationary pressures that monetary policy alone struggles to contain.

Utility tariff adjustments present a more immediate domestic concern. The Electricity Company of Ghana and Ghana Water Company face financial pressures that may necessitate price increases to ensure operational sustainability. While such adjustments might be economically justified for utility viability, they carry serious short-term inflation risks by raising business operating costs and household expenses simultaneously.

Beyond these specific threats, structural vulnerabilities persist. Exchange rate pressures could reemerge if external financing conditions tighten or if political uncertainty increases ahead of the 2026 elections. Import dependence means any sudden cedi depreciation would rapidly feed through to consumer prices across sectors from food to manufactured goods.

Election-related spending represents another concern. Ghana’s electoral cycles have historically coincided with fiscal loosening as governments increase expenditure to support political objectives. While the current administration has earned recognition for fiscal restraint during its first nine months, maintaining discipline as elections approach will test political resolve.

Experts identify three factors as crucial for sustaining low inflation. Fiscal discipline tops the list, requiring government to control spending even as electoral pressures mount. Flooding the economy with liquidity through excessive government expenditure would reignite inflationary tendencies that took years to bring under control.

Reducing import dependence represents a longer-term sustainability requirement. Initiatives promoting local food production, renewable energy development, and manufacturing growth could shield Ghana from external price shocks. Building strategic petroleum reserves, as industry groups have advocated, would provide buffers against global oil market volatility.

Policy coordination between the Bank of Ghana and Ministry of Finance ensures monetary and fiscal policies work together rather than at cross purposes. Dr. Asiamah’s assurance that the central bank stands ready to act decisively to safeguard stability signals commitment to this coordination, though implementation will determine whether it translates into sustained price stability.

For ordinary Ghanaians and businesses, inflation within the 8 ± 2% target range means more than abstract economic indicators. It translates to predictable market prices, manageable transport fares, and stability in school fees and rent costs. These basics define everyday economic life, and their stability directly affects household welfare and business planning capacity.

Business owners note that constantly changing prices make planning nearly impossible. Steady inflation allows for realistic budgeting, investment decisions based on clearer cost projections, and pricing strategies that don’t require weekly adjustments. This predictability benefits everyone from small traders to large corporations.

However, the World Bank projects Ghana’s inflation to end 2025 at 15.4%, contrasting sharply with the latest official figure of 9.4% for September and the central bank’s more optimistic projections. This divergence in forecasts highlights genuine uncertainty about whether current disinflation can be sustained or whether upward pressures will reassert themselves.

The difference between projections partly reflects different assumptions about fiscal discipline, external conditions, and policy implementation. The World Bank’s more conservative outlook may account for election-related spending risks, potential currency pressures, or other factors that could push inflation higher in coming months.

The Bank of Ghana’s third rate cut in 2025 signals confidence but also carries risks. Lowering rates too aggressively while inflation remains above the target’s midpoint could prove premature if price pressures resurface. The 21.5% policy rate remains high in nominal terms but represents substantial loosening from the 25% level maintained earlier.

Financial markets responded positively to the rate cut, viewing it as validation that Ghana’s economic stabilization program is working. Lower rates reduce borrowing costs for businesses and government, potentially stimulating economic activity. However, this stimulus could reignite inflation if it comes before underlying price pressures have fully abated.

The real test isn’t how low inflation falls today but how long it stays low without sacrificing economic growth or pushing the economy back into crisis. Ghana needs to find the narrow path between maintaining price stability and allowing sufficient monetary accommodation to support economic recovery.

Achieving that balance requires vigilance from policymakers, restraint from government spending authorities, and favorable external conditions. Any combination of oil price spikes, currency depreciation, or fiscal loosening could derail progress quickly given Ghana’s structural vulnerabilities.

International context matters significantly. Global economic uncertainty, geopolitical tensions affecting commodity markets, and monetary policy decisions in major economies all influence Ghana’s inflation trajectory. The country has limited control over these external factors but must manage their domestic impacts through appropriate policy responses.

Ghana’s return to single-digit inflation deserves recognition as an achievement after years of elevated price pressures. The question now is whether current conditions represent a sustainable new equilibrium or a temporary respite before inflation pressures return. The answer will emerge over coming months as policy discipline, external conditions, and structural reforms either reinforce or undermine today’s gains.