President of the Association of Ghana Industries (AGI) Tony Oteng Gyasi has stated that Ghana will be unable to attain the Single-Digit Inflation it has been yearning for over the past two decades.
He said this is so because the Inflation targeting module the Monetary Policy Committee (MPC) has been using over the two decades has not been able to achieve that end, and if b€œwe continue to rely on it, we would only be chasing a mirageb€
The AGI president who raised this issue during the presentation of the 2008/09 AGI Business Climate Report in Accra last week explained to this paper that using monetary policy itself for inflation targeting is faulty and so believes there is the need to take a second look at the overall economy and identify where the problem is and fix it.
This contention came against the back-drop of inflation having been identified as the number one challenge industry faced, scoring 72% on the scale during the period under review. Following after inflation were Cost of credit, 65%, High level of Taxtion, 65% Growing incidence of crime 63% and Access to credit, 58% .
I will be surprised if we are able to achieve a single digit inflation if we continue with the same module that is over two decades old, Mr Gyasi observed, adding that the central bank consistent response that something worse could have happened if that module was not used is self-serving.
What is the use of economic statistics? Mr. Oteng Gyasi quipped, adding, We should use the data we collect to formulate different policies to deal with inflation instead of using monetary policy. It is simply not working, he noted.
Commenting on the recent increase in the prime rate by the MPC, the industrialist noted that although industry was consulted before such major decisions were taken, the final decision points to the fact that the concerns of industry were not taken care of.
He calls for a new system to be identified to deal with the issue of inflation and allow the central bank to concentrate on its core role.
A representative of the central bank Johnson Asiamah explained that the central bank explores a wide range of data before fixing prime rates.
Dr. Asiamah noted for instance that given the way price of basic commodities such as tomato fluctuates in Ghana according to the seasons, the central bank needs to use the module to tighten the fiscal regime in order to curb inflation.
Commenting on the issue, the Head of Economic Statistics at the Ghana Statistical Service, Magnus Ebo Duncan told the Financial Intelligence that inflation is not only a monetary related issue, but a structural one.
The structure of our economy is such that we rely on rain-fed agriculture, with rainfall itself being erratic, said Mr. Duncan.
He proposes that a second look be taken at the structure of the economy in order to have a holistic solution to the issue of inflation. Although monetary policy is useful in mopping up excess liquidity in the system, that is not all that there is to inflation, he remarked.
The statistician observed that inflation is always low in August and September because that is the time food is in abundance, thus bringing down food prices.
So if we are able to promulgate policies to ensure an all-year-round abundant supply of food, we would have dealt with that side of the problem, he suggested.
Mr. Duncan believes that if government is able to pursue a vigorous irrigation policy, then the issue of food supply should be surmounted. In addition to this, he believes the cost of borrowing must also be looked at so that both farmers and manufacturers can access credit at an affordable cost. This, he believes would help solve the problems along the value chain of agriculture.