The Consumer Price Index (CPI) is a measure that determines the weighted average prices of a basket of consumer goods and services, calculated by averaging the price changes for each item in the basket of goods and services.

In Ghana, the CPI is examined with reference to the price level in 2012 (the base year), which has an index of 100.

In this report, we predict inflation for June 2017, basing our forecast on time series and regression analysis, and taking into consideration the impact of selected economic variables including fluctuations in commodity/food/beverage prices, exchange rate, utilities, transportation, monetary policy stance and interest rates.

Data released by the Ghana Statistical Service (GSS) in May 2017 indicated that the CPI declined by 0.4 percentage points from 13.0% to 12.6%, representing a monthly change rate of 0.7% as compared to the 1.6% recorded in April 2017. Transport posted the highest inflation rate of 23.60%, while Housing, Water and Electricity recorded the lowest rate of 7.40%.

Transportation and Fuel Prices, which is a dominant factor in the non-food inflation group of goods and services averaged GHS3.86 in June 2017, compared to the average price of GHS3.90 in May 2017. On average weighting basis, fuel prices declined by 1.03% in June 2017. However, Utility Prices did not record major changes during June 2017. With respect to Alcoholic beverages, our research from some major market players indicates that there were no price changes at the wholesale level.

The Year-To-Date depreciation of the Cedi against the Dollar at the end of June 2017 stood at 4.14%, as against the 2.74% recorded at the end of May.

However, the Cedi lost less of its value to the Dollar in June 2017 than in May 2017. Between May 2017 and June 2017, the Cedi lost 1.47% of its value against the Dollar, which is better as compared to the loss of 2.56% between April 2017 and May 2017.

The Monetary Policy Rate drives interest rates and subsequently affects the CPI. When interest rates are lowered (which has been observed in the past few months), savings becomes less attractive, while borrowing becomes cheaper. This is likely to increase spending and therefore push inflation upwards within the medium to long term. The current Monetary Policy Rate of 22.50% (which declined from 23.50%) is not expected to impact inflation in June 2017.

Our Forecast

Our forecast is based on time series and regression analysis of month-on month historical inflation rates spanning 65 months. Judging from the decline in fuel prices, the relative stability in the prices of utilities and alcoholic beverages, coupled with the relative stability of the Cedi in June 2017 as compared to May, 2017, we expect inflation for June 2017 to average between 12.3% -12.4%.

Source:citifmonline.com