The Institute of Economic Affairs is urging a change in strategy for controlling the nation's inflation, arguing that rather than acting in isolation, the Bank of Ghana and the government should collaborate to do so.
It claims that the strong supply and cost undercurrents are to blame for the growing inflation.
The policy and economic think group said in a statement that the Inflation Targeting framework used by the Bank of Ghana had fallen short of expectations.
The BoG and Government must collaborate rather than operate in separate silos or pigeonholes under the new strategy, which is more significant. For this reason, we want to make a distinction between managing the current inflation, which is similar to putting out a fire, and finding a long-term solution to Ghana's persistent inflation.
It made the point that actions must be taken specifically with regard to food and gasoline in order to reduce the existing inflation.
The IEA stated that increasing supply is vital to combat food inflation, especially by gaining access to the ECOWAS strategic store and prohibiting the export of necessities.
Additionally, it requests that the government take into account offering a temporary subsidy on basic goods like bread, rice, and maize to less fortunate customers.
"Even the IMF, which is renowned for disliking subsidies, has urged nations to provide their populations food subsidies. The government should make an effort to lower fuel costs at the pump, whether through its own surplus from higher oil prices, the Energy Sector Stabilization Levy Act (ESLA) fund.
BoG must maintain strict monetary policy.
According to the report, the Bank of Ghana may still need to maintain a restrictive monetary policy in order to temper any demand pressures brought on by fiscal policy impulses and to offset any potential second-round impacts of supply shocks.
The International Energy Agency (IEA) recommended a mixed or hybrid strategy to handle inflation over the long run. This combines the "macro-approach" with the "micro-approach," often known as inflation targeting.
This is a blend of the IT strategy—which, for want of a better term, we describe to as the "macro approach" insofar as it targets the total headline inflation—and the "micro-approach," which focuses specifically on the persistent supply or cost components of the CPI.
The policy and economic think tank also suggested a few particular initiatives to help the IT framework.
They involve providing adequate food access and affordability, fostering production, expanding storage and processing capacity, and guaranteeing year-round food supply in all markets.
Others include resourcing BOST to maintain strategic reserves for cushioning shocks, restarting Tema Oil Refinery to refine Ghana's share of crude oil, mitigating price shocks from the government's windfall earnings and ESLA fund, and reducing taxes and levies, as necessary. Other measures include ensuring the sustainable supply of fuel and avoiding extreme price volatility.
Finally, we want to emphasise that the solution we are suggesting is a pragmatic rather than an ideological one.
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