Patricia Asamoah stopped putting money into her savings fund to make sure she has enough to buy baby food for her 18-month-old child as prices soar in Ghana.
“I can no longer buy what I like,” Asamoah, a 35-year-old accountant, said as she scrutinized prices in the dairy section of one of Shoprite Holdings Ltd.’s stores in the capital, Accra. “If before I could get 10 fruit yogurts, now, I can buy five. Everybody is affected.”
Consumers in the West African nation, the world’s largest cocoa producer after Ivory Coast, are being squeezed as inflation rocketed to 13.8 percent in January and the currency plunged. The inflation rate is the highest of more than 100 countries tracked by Bloomberg after Belarus and Venezuela.
There’s no respite in sight for households as the Bank of Ghana, which raised borrowing costs to a four-year high this month and imposed currency controls to stem the currency’s slide, prepares to tighten monetary policy further. Spending by consumers like Asamoah account for about 60 percent of gross domestic product in Ghana, where economic growth has outpaced the average for sub-Saharan Africa for the past 10 years.
“The central bank will be forced to marginally increase the rates again,” Sampson Akligoh, vice-president of Accra-based Databank Financial Services Ltd., the nation’s largest fund manager, said in a phone interview. “Consumers are going to see significant pressure on their purchasing power.”
Ghanaians from Asamoah to the poorest are being stung by a 25 percent decline in the cedi’s exchange rate, which has been sparked by the country’s twin budget- and current-account deficits. Inflation will probably average 12 percent this year, according to the median estimate of eight economists surveyed by Bloomberg last week. The central bank targets an inflation rate of 9.5 percent, plus or minus 2 percentage points.
The cedi dropped as much as 2.6 percent to 2.57 against the dollar today, before curbing some of its losses to trade at 2.5187 as of 12:38 p.m. in Accra.
Stores from Shoprite to the street-side shops inside old shipping containers that dot every neighborhood in Accra are moving quickly to adjust prices in an economy where the minimum daily wage is 5.24 cedis ($2).
Salah Mohammed used to save money every day from the eight cedis she makes going door-to-door in Accra’s Newtown collecting trash. The 35-year-old mother is using that to make sure she can pay for soap, which doubled to 1.5 cedis and potable water sachets, which now cost 50 percent more, she said.
“The job is not good, but I used to be able to save 3 cedis a day,” she said, as she balanced a metal pan full of refuse on her head and her 18-month old son in a blanket on her back. “Now I just live from hand to mouth with nothing to save.”
At the city’s newest supermarket, Marina Mall, the management posted signs warning customers of prices changes this month. Milk, eggs and tea rose at least 10 percent in January from a year ago, while housing, water and electricity surged by 38 percent, according to Ghana’s Statistical Service.
“The problem is, you just can’t stop buying food,” Clara Ayer, a 67-year-old retired auditor who is foregoing Coca-Cola Co.’s Coke for bags of Unilever NV’s Lipton tea, said in an interview in Accra. “Five people depend on me, and we all have to eat.”
The central bank raised its benchmark interest rate by 200 basis points to 18 percent on Feb. 6, one day after imposing curbs on foreign-currency trading. The moves failed to halt the cedi’s slide, which dropped 5 percent since then.
Instability in the currency is stemming from the nation’s widening fiscal and current-account deficits, which prompted Fitch Ratings to downgrade Ghana’s debt by one level to B in October. Ghana reduced subsidies on fuel and raised the price on water and electricity last year to save money.
Rising prices may add to wage demands, complicating plans by President John Dramani Mahama to keep fiscal spending under control. At the same time the weaker currency is fueling import costs in an economy that spends about $1 billion a year on purchasing food from abroad.
Inflation “will lead to higher wage negotiations by the trade unions,” Akligoh said. “And you can guess the impact on goverment expenditure, which is already stressed.”
The budget shortfall probably reached 10.9 percent of gross domestic product in 2013, missing the government’s target of 10.2 percent, the Ministry of Finance said yesterday. The current-account deficit widened to 12.3 percent of GDP in 2013.
Civil servant wages equate to about 70 percent of tax revenue, according to the government.
Ballooning government salaries are limiting how much the government can spend on infrastructure needed to sustain growth in the $41 billion economy. Falling prices for gold, Ghana’s main source of foreign income, curbed economic growth to 0.3 percent in the third quarter.
Some consumers like Dudy Osoro, a mother of two from Kenya, are giving up waiting for the government to step in. She’s buying everything from lotion to dog food when she travels to South Africa or Kenya.
“I wish I had known Ghana was this expensive,” Osoro, who moved to Accra from South Africa four months ago, said in an interview at the Shoprite store. “The prices here are just ridiculous. And it seems to get worse by the week.”