Cedi gains strength, but why are prices still high in Ghana?

Ghana's cedi has shown marginal gains against the US dollar on the interbank market, registering nearly 1 percent appreciation in the last two weeks. This improvement is attributed to enhanced foreign exchange liquidity, driven by businesses financing imports and energy payments by the Bank of Ghana. Additionally, the Ghana Gold Board has sold US$197 million to commercial banks, easing demand pressures.

Despite these gains, prices in Ghana remain high. The relationship between exchange-rate gains and reduced prices is not immediate due to the time it takes for businesses to buy, price, and replace their stock. Even if the cedi strengthens, importers and wholesalers may still be selling goods purchased at higher prices. Immediate price reductions could mean selling below the cost of replacing goods.

Ghana's inflation figures also highlight that while year-on-year consumer inflation rose slightly to 5.2 percent in September, prices are still rising overall. Inflation measures the speed of price changes, not the return to previous price levels. Other costs, such as transport, rent, electricity, wages, taxes, financing, storage, and local distribution, may remain unchanged even if imported inputs become cheaper.

The pass-through of exchange-rate gains to lower prices is likely to be gradual and uneven. Factors like strong competition, the durability of the cedi's recovery, and the nature of imported goods all play a role. Importers and retailers will have to wait and see whether the cedi's gains are lasting before adjusting prices. The extent of price reductions will depend on continued foreign exchange supply, global market conditions, domestic operating costs, and the extent of the cedi's recovery.