Middle East conflict, US$107 oil threaten Ghana’s inflation outlook – BoG

The Bank of Ghana has warned that the prolonged Middle East conflict and rising global crude oil prices could intensify inflationary pressures in Ghana, with Brent crude rising to about US$107 per barrel.

Speaking at the opening of the 132nd Monetary Policy Committee meeting in Accra on Wednesday, September 23, Bank of Ghana Governor Dr. Johnson Pandit Asiama said the Middle East crisis remained the dominant issue shaping the global economic outlook.

“Global economic developments continue to be dominated by the Middle East crisis, which is now entering its seventh month,” he said.

He said hopes of a permanent ceasefire had faded, while renewed hostilities between the United States and Iran were disrupting trade flows through the Strait of Hormuz.

“Attacks on Saudi Arabia’s oil infrastructure have also shut down one of the few alternative export routes,” Dr. Asiama added.

According to the Governor, the uncertain trajectory of the conflict has increased the risks to global growth and inflation.

The pressure has also been reflected in crude oil prices. Brent crude, which was above US$85 per barrel when the MPC last met in July, rose to about US$107 per barrel last week, its highest level in four months.

“The latest price increase is occurring against a backdrop of depleted global inventories, leaving markets with less capacity to absorb further supply shocks,” he said.

Dr. Asiama said the implications for Ghana were mixed, with higher gold prices supporting some areas of the economy while rising energy and fertiliser costs posed a threat to domestic prices.

“For Ghana, the global shock is double-edged,” he said.

He explained that higher gold prices could support export earnings, reserve accumulation and government revenue, while increased energy and fertiliser import costs could quickly feed through to transport, production costs and consumer prices.

“These opposing channels will require close monitoring as the Committee assesses the implications for domestic inflation and growth,” Dr. Asiama said.

The warning comes as Ghana’s inflation rate has started to rise after reaching a low of 3.2% in March. Headline inflation stood at 5.0% in August, although it remains below the lower bound of the Bank’s 8±2% target band.

Dr. Asiama said the MPC must determine whether the expected rise in inflation over the coming months would be temporary or become more persistent.

“The question before the Committee is whether the expected rise over the coming months will be a one-off adjustment to higher energy prices and administered tariffs, or the start of more persistent pressure that could unsettle expectations,” he said.

The global oil shock is also complicating monetary policy decisions, with several central banks that had commenced easing cycles pausing or reversing course.

The Governor said tighter global financial conditions and a stronger US dollar had also weighed on emerging-market currencies, including the Ghana cedi.

The developments will form part of the MPC’s deliberations as the Bank assesses whether the current 14% Monetary Policy Rate remains the appropriate anchor for inflation expectations.