Inflation in Ghana and Cedi depreciation: causes and impact on money transfers

What does inflation mean?

Inflation is the increase in the prices of goods and services, measured across a specific time period. High inflation rates can limit purchasing power, meaning that economic growth is slowed as consumers are able to buy less with the same amount of money. This can create negative economic effects, which we’ll come to look at in more detail.

What is causing inflation in Ghana?

Currently, the inflation rate in Ghana continues to rise, though analysts predict that it will decelerate in 2023. The inflation rate in Ghana is affected by many elements, and there are different factors involved in how inflation is calculated. Some of these elements may include:;

Political risk

Heightened political division in Ghana between the ruling New Patriotic Party and their opposers has resulted in an opposition request for the removal of the current Finance Minister, Ken Ofori-Atta, due to his handling of the current financial situation. Political instabilities, situations, and risks can have a vast impact on interest and inflation rates, as they will affect how much a government will be able to borrow in times of need. Over the course of the last year, Ghana has borrowed money in attempts to stabilise inflation, so there’s also the possible risk of further debt, which will influence political conversations.

High commodity prices

Prices for commodities are a leading indication of inflation risks, and are often used in predicting inflation or deflation, though high global commodity prices can also add to high inflation levels.

Prices of crude oil surged globally after Russia’s invasion of Ukraine in early 2022, but oil is one of Ghana’s highest sources of export revenue, and oil prices in Ghana are driving inflation, causing rising energy costs. Ghana’s current inflation rates are partly a result of global oil price increases causing domestic increases at gas stations, as well as generally in transportation costs, with a knock on to other factors such as food supply chains.

Food costs increasing

Though food is generally excluded from ‘core’ inflation measures, rising prices for food was the initial cause of the inflation rate in Ghana, created by panic-buying as the country entered lockdowns due to Covid-19 in 2020. Despite making some recovery, inflation in Ghana soared again in mid-2021, after the food supply chain ran into issues of oil pricing, a bird flu outbreak in one of Ghana’s food-producing regions, and climate change causing delayed rainfall. The increase in food costs affected Ghana’s inflation rates as specific ingredients became harder to source, and therefore more costly.

Depreciation of the Cedi

Ghana’s currency, the Cedi, is depreciating against the US dollar, and is now one of the worst performing global currencies. This is one of the main factors of the inflation rate in Ghana. A weakened currency means that hikes in import costs must be passed on to individuals within the country, adding pressure to already-higher costs of food and transportation. The Cedi’s depreciation has been further impacted by effects of the Covid-19 pandemic, and global oil price increases.

How does inflation affect the Ghana Cedi’s exchange rate?

Inflation and currency exchange rates are very closely related, and changes in one have an impact on the other.  In the last year, the Ghana Cedi has lost more than half of its value against the US dollar. As imported commodities are priced in US dollars, when inflation rises, the same amount of Ghana Cedi buys less than it did before, causing currency depreciation in Ghana of the Cedi against USD. Exchange rates are often determined by a perceived desirability of a particular currency, so a decrease in that currency’s purchasing power leads to a decrease in desirability, further lowering the exchange rate.

What are the causes of the Ghana Cedi depreciation?

Ghanaian President Nana Addo Dankwa Akufo-Addo has stated that the causes of currency depreciation in Ghana have been “low inflows of foreign exchange”, as well as black market activities and financial speculation.  Depreciation happens as a result of supply and demand fluctuations, so when black market activity causes distortions on cost, this is reflected back in the currency exchange rate. It also affects the economy via undeclared tax and illegal trade. Speculation of currency depreciation can actually cause further depreciation, as a lack of confidence in the currency means that other governments become increasingly uninspired to allow additional borrowing.

What does this mean for money transfers to Ghana?

The current economic situation in Ghana means that due to the Ghana Cedi depreciating, when you send money to friends and family in Ghana, they will receive more in Ghana Cedi compared with the rates from one year ago, but will also need to spend more Cedi on the same things due to inflation. This is because of the depreciation of Ghana Cedi and is based on current exchange rates.

Sending money to Ghana with WorldRemit

WorldRemit wants to make sure you get the most for your money, even through tough times. Though the depreciation of the Ghana Cedi has impacted money transfers to Ghana, WorldRemit tries to offer the closest exchange rates to the market. Compared to other money transfer companies, WorldRemit tries to place itself as the most competitive in terms of exchange rates and Google Exchange Rates. To check real time exchange rates for money transfers with WorldRemit, use our calculator.

With WorldRemit, it’s easy to send Cedi to friends and family in Ghana via mobile money, bank transfer, airtime top up, or for cash pickup. Once you’re registered with WorldRemit, and we’ve verified your information, you can send money to family and friends via our website, or on our iOs or Android app. You’ll pay no fees on your first three transfers with our 3FREE offer, and 90% of money transfers to Ghana are ready within minutes.  

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Disclaimer: The contents of this blog post does not constitute legal or financial advice and is provided for general information purposes only. If you require specific legal and / or financial advice you should contact a specialist lawyer or financial advisor. Information true at time of publishing.