Inflation


Typical Concerns:
 
  • How can inflation impact my investment in Ghana?
  • What are the historical inflation rates in Ghana?
  • What are the current inflation trends in Ghana?
 
Solutions:
 
  • Impacts of Inflation
 
The Karvy Classroom cites various investment related impacts of inflation:
 
  • Interest Rates & Investments
 
Interest rates & bond prices are inversely related to each other. When interest rates move up, it causes bond prices to fall & vice-versa. For example, if you have a bond that is yielding 10%, and then suddenly interest rates move up to 11%, your bond is giving a lower yield than the market return. The bond price then falls in such a case. Conversely, when interest rates fall, bond prices increase. Movements in interest rates can therefore impact individual investments.
 
Anchor
  • Inflation and economy

 

Inflation affects the economy in three ways.

  1. Inflation is directly linked to interest rates. The interest rates prevailing in an economy at any point in time are nominal interest rates, i.e., real interest rates plus a premium for expected inflation. Due to inflation, there is a decrease in the purchasing power of money earned due to interest in the future. Therefore, the interest rates must include a premium for expected inflation. In the long run, other things being equal, interest rates rise in direct correlation to the rise in inflation.

  2. Inflation affects exchange rates. Exchange rates between the currencies of two countries depend upon the level of inflation prevailing in the two countries. According to the Purchasing Power Parity principle, the change in the value of one currency vis-a-vis another, is approximately equal to the inflation differential of the two countries. So the inflation levels provide an indication of the movement of currencies against each other.

  3. Inflation has an inverse relationship to economic growth. Other things being equal, economic growth is equal to the difference between money supply growth & inflation.

  • Historical Inflation Rates
 
According to the Ghana Statistical Service - Price Statistics 2nd Quarter 2010, inflation has had considerable fluctuations since 2003. Average inflation by year was:
  • 2003 29.8%
  • 2004 18.2%
  • 2005 15.5%
  • 2006 11.7%
  • 2007 10.7%
  • 2008 16.5%
  • 2009 19.3%
  • 2010 10.75%
  • 2011 8.73%
 
  • Current Inflation Trends
 
Bank of Ghana Inflation Rates show very positive trends over the last year. This is very positive news for the economy and investors. Recent trends in 2012 show inflation staying about the same as 2011.  
 
Helpful Resources:
 

Industry Specialists

Click to view organizations that offer assistance.

Cal Brokers Limited
Deloitte & Touche