Can monetary policy hold as oil prices surge?

By Joshua Worlasi AMLANU & Ebenezer Chike Adjei NJOKU

The country’s steady decline in inflation faces its first external test for more than a year as surging global crude prices threaten to reverse one of the key forces that has helped ease consumer price pressures.

International oil prices have risen sharply in recent days, now more than 50 percent higher than levels observed during the last domestic fuel pricing window on the back of geopolitical developments, particularly in the Gulf region.

The surge has raised concerns that transport costs – which have been a key source of disinflation in recent month – could soon begin to climb again, complicating monetary policy outlook just as the central bank prepares to meet and consider another interest-rate decision.

For several months the  consumer price index’s (CPI) transportation component has been in deflation territory, helping moderate overall inflation. Higher global oil prices could reverse that trend, feeding through into transport fares and eventually into the broader consumer basket through higher distribution and logistics costs.

If the rise in energy prices persists, it could also influence policy deliberations when the Bank of Ghana Monetary Policy Committee (MPC) meets from March 16 to March 18. The central bank has been gradually easing monetary policy after a prolonged disinflation period, but rising imported inflation risks could slow that process.

With yields on the 91 day and 182 day Treasury bills at 4.82 percent and 6.3 percent respectively at beginning second week in March 2026 and the Ghana Reference Rate at 11.71 percent at the time, there was optimism that the central bank would drop its MPR further beyond the current 15.5 percent as it targets sub-10 percent lending rates.

However, with recent developments, authorities face potential fiscal trade-offs – with one possible policy response being suspension of the GH¢1 levy on fuel products in order to soften the pass-through of higher international prices to domestic pump prices.

The tension between falling domestic inflation and rising global energy costs comes as Ghana’s latest inflation data showed continued improvement in price stability.

Ghana’s disinflation trend extended into a thirteenth consecutive month as headline CPI slowed by 50 basis points to 3.3 percent year-on-year in February, down from 3.8 percent in January.

According to analysis by Apakan Securities following the release of February 2026 inflation figures, the moderation was largely driven by slower food price growth – although analysts said favourable base effects also played an important role in the decline.

On a monthly basis, however, inflation momentum strengthened. Consumer prices rose 0.8 percent in February compared with 0.2 percent in January, suggesting price pressures may be firming even as annual inflation continues to ease.

Food prices have been the main driver of domestic disinflation trends over the last year. Food inflation extended its downward trajectory in February, falling to 2.4 percent year-on-year from 3.9 percent the previous month. The decline reflects a substantial supply surplus across key agricultural commodities.

Strong harvests during the most recent farming season, supported by improved rainfall and sizable carryover stocks of grains such as maize and rice, boosted market supply significantly. Large inventories left unsold in several producing regions have exerted downward pressure on farm-gate and wholesale prices.

Several components of the food basket have moved deeper into deflation. Vegetables, tubers and plantains recorded a 3.2 percent year-on-year contraction, while cereals and cereal products declined by 7 percent.

Other food categories continued to record price increases, although at relatively moderate levels. Ready-made food rose by 2.4 percent, fish and seafood prices increased by 6.6 percent and live animals and meat rose by 10.5 percent.

Monthly food inflation also slowed significantly to 0.2 percent in February, breaking a three-month period during which monthly price increases averaged around 1.1 percent.

While food prices softened, non-food inflation showed signs of stabilising. Data for February showed non-food inflation rising slightly to 4 percent year-on-year, marking the first increase since October 2024. On a monthly basis, non-food prices rose by 1.2 percent… an acceleration of 160 basis points from the previous month.

The increase was largely driven by higher housing and utilities costs which rose sharply to 12.6 percent year-on-year and higher education costs, which increased to 7.1 percent.

Transport costs however continued to exert downward pressure on the index. Transport inflation declined further to negative 7.5 percent year-on-year as relatively stable pump prices helped contain costs within the sector.

Analysts say that dynamic may soon change if global oil prices remain elevated. According to Apakan Securities, the recent inflation data may also signal that the country’s disinflation cycle is approaching a turning point.

The research firm said much of the recent moderation in inflation was driven by favourable base effects that are now beginning to dissipate. As a result, future declines in the annual inflation rate will require more significant reductions in monthly price growth.

Under current conditions, analysts estimate that month-on-month inflation would need to fall by more than 60 basis points for the annual rate to continue declining.

Based on those dynamics, Apakan expects inflation to rise slightly in March – potentially marking the first upside print in more than a year. Headline inflation is projected to range between 3.5 percent and 4.1 percent.

Despite the expected moderation in disinflation momentum, latest inflation figures still support the case for a further policy rate cut.

Apakan Securities said the decline in February inflation, combined with relatively stable inflation expectations, increases the likelihood that BoG will implement a measured reduction in its policy rate during the upcoming MPC meeting.

The central bank reduced its policy rate by 250 basis points to 15.5 percent  earlier this year after noting improved macroeconomic conditions, anchored inflation expectations and stronger external buffers.

In its January monetary policy report, the Bank of Ghana said inflation had fallen steadily throughout 2025 – reaching 5.4 percent in December from 6.3 percent in November. The decline marked the twelfth consecutive monthly fall and reflected easing pressures across both food and non-food categories.

Food inflation fell to 4.9 percent in December while non-food inflation slowed to 5.8 percent.

The central bank attributed this improvement to tight monetary policy, fiscal consolidation, easing global inflationary pressures and a bumper harvest that boosted domestic food supply.

The bank’s core measure of inflation, which excludes energy and utility items, also declined to 4.6 percent… suggesting that underlying inflationary pressures are moderating.

Inflation expectations among businesses, banks and consumers also remained relatively well-anchored. In its outlook, the Bank of Ghana said inflation is expected to remain near the lower end of its medium-term target band of 8 percent plus or minus 2 percentage points.

Nevertheless, the central bank warned that external developments, including potential adjustments to utility tariffs and global trade uncertainties, could pose upside risks to the inflation outlook.

The recent surge in oil price highlights those risks. Global crude markets have rallied sharply amid geopolitical tensions and concerns over supply disruptions in the Middle East. Brent crude is currently trading at about US$104.96 per barrel while West Texas Intermediate (WTI) crude is around US$103.15 per barrel.

Both benchmarks have risen more than 13 percent in recent sessions. Brent crude recently reached US$108.52, reflecting concerns about disruptions to shipping routes through the Strait of Hormuz.

At one point, prices surged as much as 22 percent during intraday trading as production cuts and security risks in the region threatened supply flows. Over the past month, WTI crude has risen roughly 61 percent while year-on-year gains approach 56 percent.

Production curtailments by Middle Eastern producers including Iraq, Kuwait and Saudi Arabia have contributed to the surge. Some crude grades, including Arab Light, have risen by more than 22 percent.

Global crude prices retreated sharply towards the end of trading on Monday, February 9, 2026, from their recent peaks following a series of posts by United States President Donald Trump on his Truth Social platform, with West Texas Intermediate falling from an intraday high of US$119.48 per barrel to below US$90 per barrel after the president signalled that the conflict in the Gulf region was “very complete” and suggested the war could be winding down ahead of schedule.

Brent crude similarly pulled back to around US$91 per barrel, having briefly traded above US$108 in the preceding sessions. President Trump also indicated he would lift sanctions on some oil-producing countries to ease supply pressures, though he stopped short of specifying which nations would benefit from the measure.

Despite the retreat, market participants and analysts caution against interpreting the price pullback as a sign of genuine de-escalation. Iran’s foreign minister has rejected any ceasefire talks, denying behind-the-scenes contact with American officials, while Iranian retaliatory strikes continue to target United States military installations and oil infrastructure across the region.

Analysts say high oil prices tend to have a pronounced impact on inflation in African economies that rely heavily on imported, refined petroleum products. Higher oil prices typically translate into higher pump prices, which then feed into transportation costs and food distribution expenses. The impact is often amplified by currency depreciation as larger fuel import bills increase demand for foreign exchange.

Research also shows that oil price increases tend to have asymmetric effects: inflation rises faster when energy prices increase than it falls when prices decline.

A government official said authorities have already developed contingency scenarios in case oil prices rise significantly further.

“We’ve got various policy scenarios mapped out and the necessary actions needed to be taken all the way past US$180 per barrel,” Dr. Theophilus Acheampong, a Technical Advisor at the Ministry of Finance, said in a post on X.

“Luckily, the economy is on a much better footing this time around to respond to such exogenous shocks should they be sustained,” the risk analyst added.

Despite the risks posed by higher oil prices, Ghana’s external position has improved considerably over the past year.

The country recorded a trade surplus of US$13.66billion in 2025, up from US$9.88billion in 2024. Export earnings surged to US$31.11billion, largely driven by strong performance in gold and cocoa.

Gold export receipts more than doubled to US$20.98billion while cocoa exports rose to US$3.86billion. Oil exports declined by 32.3 percent to US$2.62billion due to lower production volumes and weaker prices during the period.

Imports also increased, rising 13.4 percent to US$17.45billion, reflecting growth in both oil and non-oil imports.

The external sector outlook remains broadly favourable. Gold prices have remained elevated as investors seek safe-haven assets amid geopolitical tensions, while cocoa supply recovery in West Africa is expected to ease prices gradually.

Crude oil markets however remain highly sensitive to geopolitical developments, particularly those affecting production or shipping routes.

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