“Ghana has experienced high inflation over a long period of time. Over the past thirty years, monetization of fiscal deficits and cyclical food deficits have been the principal drivers of inflation. Achieving sustained disinflation therefore depends on addressing these factors on a durable basis. In this paper, the author notes that, inflation management under the previous monetary targeting (MT) framework was ineffective because of the intractability of the underlying causes. The move to inflation targeting (IT) in 2007 did not help matters, mainly because of the stubbornness of the underlying causes as well as the absence of the key IT policy and structural conditions. The author states that, fiscal austerity has helped recent disinflation, but could also have contributed to a slowdown in the economy, especially in 2009. In his view, low, stable inflation is beneficial to growth and employment in the longrun, although there could be short-term costs to rapid disinflation. This assertion is supported by both theoretical and empirical literature, including Ghana’s own experience. He concludes by noting that, oil production will be potentially the biggest influence on future inflation, given expected boost in government expenditure and general aggregate demand. In his view, achieving the low single-digit inflation envisaged over the medium-term would entail exceedingly tight monetary policy, which could in turn put brakes on economic activity.”
