A lecturer at the Economics Department of the University of Ghana, Dr Adu Owusu Sarkodie, has answered why people are not witnessing a drop in prices of goods and services despite the downward trend in the rate of inflation.
He explained that what is happening with inflation currently is termed in economics as ‘disinflation’, that is when the rate at which inflation is increasing has slowed. It does not mean prices are going to drop.
Consumers will begin to see a drop in the prices of goods and services when the country reaches the deflation stage, he added.
Deflation occurs when the inflation rate falls below zero, and prices generally decline throughout an economy. Disinflation is what happens when the inflation rate falls but remains positive. In disinflation, prices continue to increase but at a slower rate.
The Ghana Statistical Service (GSS) announced on Wednesday that the inflation rate dropped to 26.4% in November 2023 from 35.2% recorded in October 2023.
According to the GSS, the major factor that contributed to the drop was food inflation.
Food inflation dropped by 12.6% to 32.2% in November 2023. The month-on-month rate of food inflation was 0.8%.
For non-food inflation, it also eased to 21.7%, as compared with 27.7% in October 2023. The month-on-month rate of non-food inflation stood at 2.2%.
Five divisions recorded inflation rates higher than the national average.
They are Alcoholic Beverages, Tobacco and Narcotics (39.0%); Personal Care, Social Protection and Miscellaneous Goods and Services (35.4%); Food and Non-Alcoholic Beverages (32.2%); Furnishings, Household Equipment and Routine Household Maintenance (32.2%) and Restaurants and Accommodation Services (27.1%).
Asked whether this drop necessarily means that people are going to experience a reduction in prices while speaking on the Ghana Tonight show on TV3 on Thursday, December 14, Dr Owusu Sarkodie said, “Far from that, you are talking about disinflation, when the inflation rate is being reduced, that is disinflation. I think what people are talking about is deflation. We haven’t gotten to the level of deflation where we expect prices to go down.
“But it is good news that we are experiencing disinflation, because as we all know inflation is the reduction in purchasing power. So, when the reduction in the purchasing power has slowed, it is good news. Let us liken inflation to the speed of a car, if you are driving 100km per hour and you reduce the speed to 60km per hour, it does not mean that the car is reversed, it only means that the car is still moving forward but its speed has been reduced. So, what we can understand is that the speed at which prices increased has reduced or has slowed down, and I think it is better.”