A recent video explanation by the Government Statistician has reignited public debate and confusion around inflation, particularly why Ghanaians continue to experience rising prices even when official data shows that inflation is declining.
For many households, the numbers simply do not add up. Market prices remain high, transport fares feel heavier, and the cost of basic necessities continues to strain incomes. So why does inflation fall on paper while life feels more expensive in reality?
The answer lies in understanding what inflation really measures, how prices behave over time, and how economic shocks leave long-lasting effects.
What Inflation Actually Measures
Inflation is not a measure of how expensive things are. Rather, it measures how fast prices are increasing over a specific period—usually month-on-month or year-on-year.
The Government Statistician explained that inflation tracks the rate of change in prices, not the price level itself. This distinction is crucial.
For example:
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If the price of a bag of rice rises from GH¢100 to GH¢150 in one year, inflation is high.
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If the price then rises from GH¢150 to GH¢160 the following year, inflation has fallen—even though the price is still going up.
In simple terms, falling inflation means prices are rising more slowly, not that they are falling.
Why Prices Don’t Automatically Fall When Inflation Drops
One of the most common misconceptions is that lower inflation should result in immediate price reductions. However, prices rarely fall unless there is deflation, which is a sustained decrease in prices across the economy.
The Government Statistician stressed that deflation is different from disinflation:
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Disinflation: Prices are still increasing, but at a slower rate.
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Deflation: Prices are actually decreasing.
In Ghana’s case, the economy is experiencing disinflation, not deflation. That means businesses are still adjusting prices upward, just not as aggressively as before.
The “Base Effect” Explained
Another key reason prices feel stubbornly high is the base effect.
Inflation is calculated by comparing current prices with prices from the same period the previous year. When inflation was extremely high—as Ghana experienced during periods of currency depreciation, energy price hikes and supply disruptions—the comparison base becomes elevated.
As a result:
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Even small increases today are measured against already high prices from last year.
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This makes inflation appear to fall sharply, even though prices remain elevated.
The Government Statistician noted that the base effect can create a disconnect between lived experience and official data, especially after periods of economic turbulence.
Why Businesses Rarely Reduce Prices
Once prices go up, businesses are often reluctant to bring them down, even when inflation eases. This is due to several structural factors:
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High Operating Costs
Electricity, fuel, rent, taxes, and logistics costs often remain high. If these inputs do not fall, businesses have little incentive or ability to reduce prices. -
Exchange Rate Pressures
In an import-dependent economy like Ghana’s, prices are heavily influenced by the exchange rate. Even when inflation slows, currency volatility can keep imported goods expensive. -
Debt and Recovery Costs
Many businesses increased prices to survive economic shocks. Lowering prices too quickly could threaten their ability to recover losses or service debts.
The Statistician explained that price rigidity—the tendency of prices to stay high—is common in most economies after inflation spikes.
Inflation Is an Average—Your Experience May Differ
Another important point raised is that inflation is an average measure based on a basket of goods and services.
This means:
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If prices of some items fall or rise slowly, they can offset sharp increases in essentials like food, transport, or rent.
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Households that spend a larger portion of their income on food and transport may feel inflation more intensely than the national average suggests.
For example, if data shows that communication costs are stable or falling while food prices rise sharply, the official inflation rate may fall—but households still feel squeezed.
Food Prices and Supply Constraints
Food inflation plays a major role in shaping public perception. The Government Statistician acknowledged that food prices are often slow to respond to falling inflation due to:
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Climate shocks
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Poor road networks
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Post-harvest losses
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High transport costs
Even if macroeconomic conditions improve, these structural challenges can keep food prices elevated, particularly in urban markets.
Why Falling Inflation Is Still Good News
Despite the frustration felt by consumers, falling inflation is not meaningless. The Statistician emphasised that declining inflation signals:
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Improved macroeconomic stability
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Better monetary control
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Reduced pressure on interest rates
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Greater predictability for businesses and investors
Lower inflation also creates room for:
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Potential interest rate cuts
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Improved credit conditions
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Gradual stabilisation of the cost of living
However, these benefits take time to filter through to households.
What Would Actually Make Prices Fall?
For prices to genuinely decline, several conditions would need to align:
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Strong and sustained currency appreciation
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Reduced fuel and utility costs
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Improved local production and supply chains
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Increased competition
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Higher productivity and lower business costs
The Government Statistician cautioned that price reductions are usually gradual, not immediate, and often limited to specific sectors rather than the entire economy.
The Communication Gap
A major takeaway from the explainer video is the need for better public understanding of economic indicators. Inflation data is often misunderstood, leading to mistrust in official statistics.
The Statistician urged the public to view inflation as a directional signal, not a direct measure of hardship.
“Lower inflation means we are slowing the pace at which prices rise,” he explained. “It does not mean prices have returned to where they were.”
Conclusion: Managing Expectations
The frustration many Ghanaians feel is valid. When incomes remain stagnant and prices stay high, falling inflation offers little immediate relief. However, understanding the difference between price levels and inflation rates helps explain why the cost of living can remain elevated even as headline inflation declines.
The Government Statistician’s message is clear: falling inflation is a necessary step, but not a miracle cure. Real relief depends on sustained economic stability, structural reforms, and growth that translates into higher incomes.
Until then, prices may continue to rise—just more slowly.
