Ghana: Ghana’s consumer inflation rose for a third consecutive month, coming in at 43.1% y/y in July, up from 42.5% in the preceding month and above our estimated 42.0%. CPI rose by 3.6% m/m in July, a notably faster increase than the 3.2% seen in June. Both food and non-food inflation contributed to the increase although the increase in the latter’s index was substantial. After increasing 2.6% m/m in June, the non-food index rose 3.4% in July, driven by steep increases in the indices for housing & utilities, furnishings, health, transport, recreation & sport, restaurants & accommodation and personal care – in that order.
Although the food & non-alcoholic beverages index rose by 3.8% m/m and was marginally softer than June’s 3.9%, it remains steep (the food & NAB index is 42.7% of the total CPI basket). The bad news is that Absa group projections show that inflation could rise further in August before favourable base effects begin to take effect from September. With inflationary pressures still broad-based, the group expect it to end the year at 31.5% y/y, averaging 42.4% this year and 23.9% in 2024. The higher inflation profile suggests further policy rate increases, with the MPC, at its July meeting, stating that if the higher inflation profile is not contained, it ‘could embed in underlying inflationary pressures’. As a result, the committee called for an appropriate and decisive response to these risks and hiked the policy rate by 50bp. Absa now believe that another 50bp policy rate hike is likely at the September meeting, taking the policy rate to 30.5%.
Kenya: The Central Bank of Kenya (CBK) MPC yesterday kept the central bank rate (CBR) unchanged at 10.5%, in line with its expectation. At 7.3% y/y in July, inflation fell within the 2.5-7.5% target band and the committee expects it to decline further as food inflation eases.
The committee said that the previous monetary policy tightening was still transmitting through the economy. It was against this backdrop that the MPC decided to keep the CBR unchanged at yesterday’s meeting. The MPC lowered the discount window rate to 400bp above the CBR from 600bp before.
The MPC statement also revealed that the CBK expects economic activity to have strengthened further in Q2 23, following growth of 5.3% y/y in Q1, supported by the services sector, rebound in agriculture, and measures implemented by the government to boost economic activity in priority sectors. The current account deficit is projected to improve to 4.8% of GDP in 2023 from 5.1% in 2022. FX reserves stood at USD7.4bn, equivalent to 4 months of import cover, down slightly from USD7.4bn (4.1 months of import cover) at the June MPC meeting. Looking ahead, Absa group expect second-round effects from currency depreciation and tax increases to keep inflation elevated in the near term. Wheat prices, which have ticked higher on news of Russia backing out of the Black Sea deal that allowed safe passage of grain exports from Ukraine, also pose a threat to the inflation outlook. Overall, they expect inflation to average 7.9% this year, up from 7.7% in 2022, and see room for the MPC to hike the policy rate by 100bp at the October meeting. However, downward surprises to our inflation estimates pose a risk to our policy rate view.
Tanzania: Consumer inflation eased to 3.3% y/y in July from 3.6% in June, coming in below our 3.5% estimate. CPI decreased by 0.1% m/m, following a 0.1% increase the prior month, mainly driven by a decline in food and housing & utilities costs. The food & non-alcoholic beverages index fell by 1.2% m/m, while the housing & utilities index decreased by 0.2%, which together with a moderation in clothing & footwear and restaurant & accommodation services contributed to slowing inflation. Looking ahead, Absa expect favourable food and fuel base effects to keep inflation contained. The group forecast inflation to average 4.0% in 2023, lower than last year’s 4.3%, and for it to remain below the Bank of Tanzania’s (BoT) 5.0% medium-term target. Against this backdrop, they believe the MPC will keep the policy rate unchanged for the remainder of the year.
