A pipeline between producer and consumer prices in Ghana: A Policy Issue

Johnson Ahiadorme and Linda Akoto
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Linda Akoto: Macroeconomics Section, Ghana Statistical Service, Accra, Ghana

Financial Economics Letters, 2023, vol. 2, issue 3, 10-21

Abstract: As prices have grown at their fastest pace in recent times, inflation has become a key concern for the macro-policy environment. In many jurisdictions, consumer prices have typically formed the basis for price stability policies. Notwithstanding, producer prices remain an important channel and must be closely watched. We utilise data on Ghana and investigate the causal links between consumer and producer inflation and assess the necessity to include producer inflation target in the monetary policy rule. Our VECM and Granger causality analyses show that consumer and producer prices exhibit very stable long-term relationship and short-term gaps between the two tend to normalise over time. The relationship between consumer and producer prices has not been a one-sided lag structure, even though producer prices lead more than lag consumer prices. We conclude that Bank of Ghana’s monetary policy design that does not distinguish between consumer and producer inflation is less problematic at the moment.

Keywords: Inflation; Monetary policy; Granger causality; VECM; CPI; PPI (search for similar items in EconPapers)
Date: 2023
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