Since the beginning of the year, prices of goods and services in Ghana, just as in other parts of the world, have been on the rise as a result of inflationary pressures.

The manifestation of these inflationary pressures, coupled with fuel price increment, depreciation of the Cedi, and exchange rate challenges have resulted in reduction in household incomes, high cost of living and deteriorated standard of living, hence economic hardship.

For example, a loaf of bread, which was sold for GHS6 at the beginning of the year is now being sold for a price range of GHS12 and GHS15 (an increase of about 100 and 150 percent).

Diesel and petrol, which are major fuels for transportation, and critical determinants of transport fares, have also increased.

Increases in fuel prices also trigger increases in every commodity, including food and non-food items.

In January this year, the price of diesel per litre was GHS7, but has increased to GHS12.20 per litre (74 percent increase), while petrol, which was sold for GHS6.8 is now being sold for GHS10.10 (48.52 percent increase).

This is largely attributed to shocks (imported inflation) that the Ghanaian economy is experiencing, mainly, the impact of the COVID-19 pandemic and the Russia-Ukraine conflict.

Again, figures provided by the Ghana Statistical Service (GSS) show that the country’s year-on-year inflation rate has increased from 7.5 percent in May 2021 to 27.6 percent in May 2022.

This comes as the Consumer Price Index – the measure of changes in the price of a fixed basket of goods and services purchased by households for May 2022 increased from 162.8 relative to 127.6 in May last year.

A price index is a normalised average of price relatives for a given class of goods or services in a given region, during a given interval of time. It is designed to help to compare how these price relatives, taken as a whole, differ between time periods or geographical locations.

Inflation explained

In a market economy, prices for goods and services can always change. While some prices rise, others fall.

To understand the rise and fall in the general prices of goods and services, the Statistical Service uses CPI to measure the changes in the prices of fixed basket of goods and services purchased by households.

The assumption is that the basket is purchased each month. Therefore, as price changes each month, the total price of the basket will also change.

GSS computes inflation based on a living standard survey to understand the living arrangement of persons in Ghana through the collection of information on expenditure of different items.

Prices of 39,500 products under 307 items from 7,726 outlets in 44 markets across the country are used for the calculation of the share of each item and consumption expenditure of the households, and weights attached to them.

Professor Samuel Kobina Annim, Government Statistician, told the Ghana News Agency that having collected such data from the market, it then measures the change in prices of goods and services bought by households over a two-time period.

This is done either on a month-on-month basis or on a year-on-year basis.

The rate of change in the consumer price index between those two time periods is what is termed inflation, Prof Annim explained.

The International Monetary Fund (IMF) also explained that inflation measures how much more expensive a set of goods and services has become over a certain period, usually a year.

“For instance, if we take the price index for May 2021, and take the price index for May 2022, the rate of inflation is simply the change in the consumer price index over these two times periods,” he noted.

Implications of inflation

Caused by both demand and supply factors, inflation (especially when high) affects people in two different ways; at the macro and individual levels.

Demand-pull inflation occurs when an increase in the supply of money and credit stimulates overall demand for goods and services in an economy to increase more rapidly than the economy's production ability.

Cost-push inflation on the other hand is as a result of the increase in prices working through the production process inputs, which also makes costs for all kinds of intermediate goods rise.

At the individual level, inflation affects fixed income earners, whose cost of living become worsened as their real incomes decline because of soaring prices of goods and services.

“For instance, if every month you are paid GHS10,000, once there’s inflation, your real earnings reduce. This is because at any point in time, what you used to buy is going to cost you more to get those set of items that you are buying monthly,” Prof Annim said.

He added that: “If you have some investment somewhere and it is fixed over a period of time, once there is inflation, the value of that investment reduces.”

Prof Peter Quartey, Director of the Institute of Statistical, Social and Economic Research (ISSER) also stated that inflation affects the ability of businesses to plan, noting that: “As prices keep changing, you cannot plan.”

The Economist said when inflation was high: “You’ll find some people who cannot even have a meal a day; a lot of people walking to work instead of taking transport, and social vices, including robbery and prostitution going up.”

Some measures to cope with rising inflation

The experts GNA spoke to said they were “cautiously optimistic” that the inflationary pressures being experienced in the country would reduce by December 2022, or early next year.

They, therefore, advised Ghanaians to adopt some strategies, which could cushion them during the period, while the Government also put in measures to contain the inflationary pressures.

Prof Annim asked consumers to be aware of the variations in the prices in their geographical areas and equip themselves with information and shop for commodities around the same quality for lower prices.

Additionally, he said consumers could go in for substitutes, where possible, and vary their tastes.

For his part, Prof Quartey, said: “As individuals, we should strategise by reprioritising our expenditures. Businesses would also have to think about new strategies to survive in this new dispensation.”

“When it comes to the supply side, fiscal policy is important that is why we have to use fiscal measures to stimulate production, including some incentives for certain categories of producers and investing in the agriculture value chain, especially irrigated agriculture,” he added.