Charley, this was the question I asked a market woman when I stepped out to buy some foodstuffs from the market. You remember back in December 2022, when inflation was around 54%? I remember it really well because that was when a usual bag of 35 cedis rice suddenly doubled overnight to 70 cedis, and it finally rested at 100 cedis. The thing really go me. So imagine my joy when I heard on the news that Ghana’s inflation rate had dropped. Finally! My income has increased a bit, and so if I do the calculation, I can save way more when I buy a 5kg bag of rice. So, imagine my surprise when the market woman told me that the 5kg bag of rice was still GHC 100. Eii!
Here’s the thing: We have got the meaning of inflation all wrong. Totally. When economists chat about inflation, they do not mean prices themselves. They mean the rate at which the prices of goods and services change. The keyword here is the “rate of change”. When you hear big figures like 54% inflation, it means that prices are going up really fast; on average, 54% fast. When you hear of figures like 9.4%, which was recorded just last month, you know prices are still going up, but slowly; on average, 9.4% slowly. So here’s where the confusion comes in, and you’re not alone in this. When we hear “inflation is down,” our minds automatically think “prices are down.” But that’s not how it works at all. It’s like when you’re driving from Accra to Kumasi and you reduce your speed from 120 km/h to 60 km/h. You’re still moving towards Kumasi, just not as fast as before. The distance you’ve already covered doesn’t magically reduce just because you slowed down.
In conclusion: That 100 cedis bag of rice? It’s staying at 100 cedis because inflation being down doesn’t reverse the price. All those price increases from when inflation was at 54%? They’re stuck. Permanent. What the 9.4% inflation means is that your 100 cedis bag of rice might become 109 cedis by next year, not 154 cedis like it would have if inflation stayed at 54%. If the prices will ever come down, unless there is deflation.
Chief, you are doing an amazing job, breaking things down.
Do you envisage we could ever be in a period of disinflation as a country?
Yes, we are actually experiencing disinflation (where inflation slows down but prices still rise) right now.
Another well understanding explanation.
You are really helping many of us.
So what can really make the prices of items come down?
Yes, when prices come down that is deflation. Sadly, that usually signals something terrible is happening in the economy.