Exchange-Rate Pass-Through in Ghana: How Cedi Depreciation Feeds into Consumer Inflation

How quickly currency weakness reaches household prices, which spending categories move first, and what this implies for policy, corporate FX management, and portfolio strategy.

Published: 2026-06-07 | KANA AI Research

Executive Summary

Ghana’s inflation process is closely linked to the exchange rate.[1][2] Over the monthly sample analyzed, headline consumer prices and the GHS/USD rate move together strongly, with exchange-rate movements statistically preceding consumer price movements over short horizons. The strongest aggregate signal appears within one month.[3][4] In practical terms, cedi depreciation is a near-term pricing shock that reaches consumers quickly.[3][4]

The pattern across spending categories is important. Food prices respond fastest among the major household groups, with the strongest pass-through at five months; housing follows at seven months; and transport shows the longest transmission lag at ten months.[5] This pattern is consistent with Ghana’s economic structure: imported food inputs and tradables reprice relatively quickly, while housing and transport costs adjust through contracts, administered prices, inventory cycles, and fuel-pricing mechanisms.[1][5][6]

The policy context reinforces these results. Inflation peaked at 54% in December 2022 during Ghana’s macroeconomic crisis, following sharp cedi depreciation, food and energy shocks, and fiscal-monetary strain.[7][8] The policy response included a 1,500 basis point increase in the Bank of Ghana’s policy rate to 29.5% by March 2023 and liquidity tightening, alongside an IMF-supported programme and fiscal consolidation to restore credibility and rebuild reserves.[7][8][9] Official projections now anticipate headline inflation falling from 23.8% in December 2024 to 8% by October 2025.[10]

Key findings:

• Monthly exchange-rate changes and CPI changes are correlated at 0.96 over 337 monthly observations, indicating an exceptionally tight same-month co-movement between cedi depreciation and consumer prices.[3]
• Granger-causality tests show the GHS/USD rate predicts CPI at lags of 1 to 6 months, with the strongest aggregate effect at 1 month (p = 5.9e-05).[4]
• The long-run link is statistically strong: CPI and the exchange rate are cointegrated over 1998–2026 (test statistic = -4.267; p = 0.0029), meaning they do not drift apart indefinitely.[11]
• Category pass-through is staggered: food shows the strongest effect at 5 months, housing at 7 months, and transport at 10 months.[5]
• Inflation peaked at 54% in December 2022, while official projections indicate a decline to 8% by October 2025.[7][10]
• The cedi depreciated by 19.2% against the US dollar in 2024, down from 27.8% in 2023, indicating pressure remains but is moderating.[12]

1. Theoretical Framework

Exchange-rate pass-through is the process by which a weaker currency raises domestic prices.[1] In a small open economy such as Ghana, four mechanisms are most relevant.[1][6]

First, import content is the direct channel.[1] Ghana’s CPI basket contains 307 goods and services, many with imported components or distribution inputs.[1] When the cedi weakens, the local-currency cost of imported food, fuel, medicines, transport equipment, building materials, and retail inventory rises.[1][6]

Second, pricing-to-market shapes timing.[1] Importers and retailers may temporarily absorb FX shocks through margins or inventory, but sustained depreciation eventually forces price adjustments.[1]

Third, inflation expectations amplify or dampen the shock.[1][6] If firms and households expect the central bank to restore stability quickly, price-setting is more restrained. If not, businesses reprice faster and workers seek compensation earlier.[6][8]

Fourth, monetary-policy credibility determines how much of the FX shock becomes generalized inflation.[6][8][9] Ghana’s policy framework targets inflation in the 6–10% range, and recent fiscal consolidation, reserve rebuilding, and FX market support measures are intended to prevent a currency shock from becoming a broad inflation spiral.[6][8][9]

Theory therefore predicts three outcomes for Ghana.[1][6] One, pass-through should be high because import dependence is significant.[1] Two, pass-through should be faster for tradables such as food and fuel-linked items than for services.[1][5] Three, the strength of pass-through should vary across policy regimes, becoming more intense when credibility weakens and macro stress rises.[6][8]

In Ghana, the exchange rate is a pricing variable for the household basket.[1][6] Any institution exposed to cedi weakness should assume inflation consequences follow quickly unless policy credibility is strong enough to break the link.[6][8]

2. Historical Context: Ghana’s Inflation and FX Regime in Phases

2.1 Pre-crisis and reform phase: 2015–2019

Ghana entered an IMF Extended Credit Facility programme in April 2015, combining fiscal adjustment with macro stabilization.[9][13] In June 2015, petroleum pricing was fully deregulated, making domestic fuel prices more responsive to exchange-rate and world oil-price movements.[14] This increased the speed at which FX and oil shocks reach consumer prices.[14]

2.2 Shock accumulation phase: 2020–2021

The COVID-19 period weakened fiscal buffers and disrupted trade and supply chains.[6][15] Even before the 2022 crisis peak, Ghana’s inflation regime was becoming more vulnerable to imported shocks, reserve pressure, and expectation slippage.[6][15]

2.3 Crisis and pass-through surge: 2022–2023

Inflation reached 54% in December 2022.[7] The drivers included sharp cedi depreciation, global food and energy shocks, and domestic monetary financing of fiscal deficits.[7][8] The Bank of Ghana responded by raising the policy rate by 1,500 basis points, from 14.5% to 29.5% between early 2022 and March 2023, and by increasing reserve requirements from 8% to 14%.[7] Ghana entered a new IMF Extended Credit Facility programme in May 2023, focused on fiscal consolidation, reserve rebuilding, exchange-rate flexibility, and disinflation.[8][9]

Statistical evidence shows a structural break in CPI in July 2022, marking a clear shift in price dynamics.[11] The exchange-rate series shows a structural break in November 2016, indicating the cedi’s behavior had changed prior to the 2022 inflation crisis.[11]

2.4 Stabilization and credibility rebuilding: 2024–2025

By 2024, pressure remained but was easing.[10][12] The cedi depreciated by 19.2% in 2024, less severe than the 27.8% depreciation in 2023.[12] Official policy documents attribute the improving inflation outlook to tighter macro management, FX support measures, and restored policy credibility.[10][12] Authorities also expanded FX-support mechanisms, including forward auctions and gold-linked reserve initiatives.[6][15]

Ghana’s pass-through is regime-dependent.[6][8][11] In stable periods, depreciation still matters; in crisis periods, it becomes the core transmission channel from macro stress to household inflation.[7][8]

3. Empirical Results

3.1 Aggregate co-movement between the cedi and consumer prices

As Figure 1 shows, Ghana’s CPI and the GHS/USD exchange rate trend upward together over the common monthly sample, especially during stress episodes.[3][4]

Figure 1. Monthly Ghana CPI and GHS/USD Exchange Rate, 1998–2024. Source: Ghana Statistical Service, Bank of Ghana

Figure 2 isolates the exchange rate and shows the long arc of cedi weakening against the US dollar.[3][11]

Figure 2. Ghana Cedi per US Dollar, 1972–2024. Source: Bank of Ghana

Figure 3 shows the CPI trend alone. The latest CPI level in the loaded monthly series is 262.3, meaning the price index is about 2.6 times its base-period level in that series.[3]

Figure 3. Ghana Consumer Price Index, 1998–2026. Source: Ghana Statistical Service

The core descriptive result is that the two series move closely together.[3][4] Using first differences — month-to-month changes — the Pearson correlation between exchange-rate changes and CPI changes is 0.96 over 337 monthly observations.[3] In practical terms, monthly cedi weakness and monthly consumer-price increases move almost one-for-one in direction and strongly in magnitude.[3]

Trend regressions show:

• CPI: An average increase of about 0.58 index points per month (about 7.0 index points per year).[3]
• FX: The cedi lost about 0.01 GHS per USD per month (about 0.12 GHS per USD per year).[3]

Because both variables trend upward, these regressions are descriptive and not causal.[3][4] Lead-lag and causality tests are required to assess directionality.

Table 1 summarizes the aggregate statistical evidence.

Table 1. Aggregate exchange-rate pass-through to Ghana CPI

Sources: [3][4][11]

This evidence shows two layers of pass-through: immediate, with the cedi and prices moving together in the same month; and predictive, with exchange-rate changes helping explain CPI over the next one to six months.[3][4][11]

3.2 Lead-lag structure and Granger causality

Cross-correlation in first differences peaks at lag 0, meaning the strongest relationship is contemporaneous: exchange-rate changes and inflation changes happen in the same month.[3] This is consistent with rapid repricing, fuel-price adjustment, and fast transmission through imported consumer goods and wholesale channels.[1][14]

Granger-causality tests show that lagged exchange-rate values improve CPI prediction for lags 1 through 6 months, with the strongest evidence at 1 month (p = 5.9e-05).[4] This means that, even after controlling for CPI’s own history, last month’s exchange-rate movement still helps predict this month’s consumer prices.[4]

A VAR model with six lags also finds two-way interaction: the exchange rate predicts CPI, and CPI predicts the exchange rate. However, the VAR system is not stable, so the dynamic magnitudes should be treated as indicative only.[4]

Impulse-response analysis points to a fast and meaningful transmission window, with the effect building over the first 3 to 6 months after an exchange-rate shock.[4]

3.3 Category-specific pass-through: food, housing, and transport

Figure 4 shows the three category CPI series used for the disaggregated analysis.[5]

Figure 4. Ghana CPI by Spending Category: Food, Housing, and Transport, 1998–2026. Source: Ghana Statistical Service

The category tests use the same Granger framework, with category CPI replacing headline CPI.[5]

Table 2. Category-specific exchange-rate pass-through in Ghana

Source: [5]

Food is the fastest transmission channel at 5 months.[5] This reflects Ghana’s import structure and food-market dynamics. Housing follows at 7 months, likely reflecting slower rent resets and contract adjustments. Transport is slowest at 10 months, likely due to regulated or staggered fare adjustments and inventory cycles.[5][14]

The exchange-rate series itself is highly volatile, with annualized volatility of 934.4% and a coefficient of variation of 173%.[5]

4. Forward-Looking Assessment

A new 12-month model-based forecast could not be produced from the available forecasting output, so the outlook here relies on official projections and the recent historical pattern.[10][12]

Official projections show headline inflation falling from 23.8% in December 2024 to 8% by October 2025.[10] At the same time, the cedi depreciated by 19.2% in 2024, after 27.8% in 2023.[12] This implies a stabilization story, not a full return to low-volatility normality. Inflation is expected to fall sharply, but the exchange rate remains fragile enough that renewed pass-through risk cannot be dismissed.[10][12]

For asset allocators, this creates a two-speed macro environment. Disinflation improves the case for duration and local-currency fixed income if policy credibility holds. But residual FX weakness means nominal returns can still be eroded in foreign-currency terms.[10][12]

5. Implications for Decision-Makers

5.1 Importers and businesses managing FX exposure

The evidence supports a short hedge horizon.[3][4][5] Aggregate pass-through is strongest within one month, and category effects build over 5 to 10 months depending on the sector.[4][5] Firms importing food, consumer goods, fuel-linked inputs, spare parts, chemicals, or building materials should assume that unhedged FX losses will reach customer pricing or margins quickly.[1][5]

Recommended actions:

• Shorten repricing cycles and review contracts monthly, not quarterly.[4]
• Match currency denomination to cost structure where possible, especially for imported inventory and fuel-linked logistics.[5]
• Use layered hedging rather than all-at-once hedging, as FX pressure is moderating but not eliminated.[12]

In Ghana, FX risk is inventory risk and margin risk.[3][4][5] A treasury policy that treats exchange-rate volatility as a year-end issue is misaligned with the data.

5.2 Asset managers

For local-currency investors, the key comparison is between disinflation speed and residual depreciation.[10][12] If inflation falls faster than the cedi weakens, real local returns improve. If depreciation re-accelerates, pass-through can quickly reopen the inflation problem.[4][12]

Portfolio construction should separate rate duration from currency conviction. Ghanaian bonds may benefit from falling inflation and restored policy credibility, but unhedged foreign investors still carry meaningful FX risk.[10][12] Equity investors should focus on firms with natural hedges: exporters, gold-linked earners, and businesses with strong pricing power.[6][15]

5.3 Policy Implications

For Government

1. Defend credibility, not a level of the exchange rate. Inflation responds quickly to cedi weakness, especially within one month at the aggregate level.[4] The policy priority is a credible anti-inflation regime—fiscal discipline, reserve rebuilding, and clear communication—rather than episodic defense of a single FX level.[8][9]
2. Target the fastest pass-through channels first. Food responds most quickly at five months.[5] Temporary trade facilitation, logistics smoothing, and import-cost relief for critical food inputs can reduce the fastest transmission channel without broad subsidies.[5][15]
3. Treat fuel and transport pricing as inflation accelerants. Full petroleum price deregulation has improved market responsiveness, but it also increases pass-through.[14] A transparent formula and communication strategy can reduce expectation spillovers when fuel prices adjust.[14]

For Investors

1. Separate inflation risk from currency risk. Ghana’s disinflation path is improving, but the cedi still depreciated 19.2% in 2024.[10][12] Local bonds can rally while FX still erodes hard-currency returns.[12]
2. Prefer businesses with pricing power or dollar-linked revenues. Firms exposed to imported inputs without pricing flexibility are most vulnerable.[1][5]
3. Use the lag structure in earnings analysis. Food-related businesses should be stress-tested over a 5-month FX window, housing-linked names over 7 months, and transport-linked names over 10 months.[5]

For Development Partners

1. Support reserve adequacy and policy credibility. IMF support, fiscal consolidation, and tighter monetary policy are central to reducing second-round inflation effects.[8][9]
2. Invest in market infrastructure that reduces pass-through. Better storage, logistics, domestic input substitution, and energy reliability reduce the import intensity of the CPI basket over time.[1][15]
3. Strengthen inflation communication and data transparency. In a high-pass-through economy, expectations matter. Clear communication from the central bank and statistical agencies helps prevent temporary FX shocks from becoming generalized price-setting behavior.[1][6]

Data Sources and Methodology

This report uses monthly Ghana CPI data and monthly GHS/USD exchange-rate data over the longest common sample available, alongside monthly category CPI series for food, housing, and transport.[3][4][5] The CPI series spans January 1998 to January 2026 with 337 monthly observations, while the exchange-rate series spans June 1972 to August 2024, with the joint analytical sample running from January 1998 to August 2024/January 2026 depending on the test.[3][4][11]

The empirical analysis combines five methods:[3][4][5][11]

1. Descriptive trend analysis to establish long-run movement in CPI and the exchange rate.[3]
2. Correlation in first differences to test whether monthly changes move together contemporaneously.[3]
3. Cross-correlation to identify whether exchange-rate changes lead inflation changes over a 24-month window.[3]
4. Granger-causality tests and VAR analysis to test whether lagged exchange-rate values improve inflation prediction.[4]
5. Cointegration and structural-break tests to assess whether the long-run relationship is stable and whether crisis episodes changed the regime.[11]

The forward-looking section uses official Ghana government and IMF-linked policy projections because a new model-based 12-month forecast was not available in the evidence set.[10][12]

Limitations

Several causality tests were run on levels rather than first differences, which raises the risk of spurious inference when variables trend over time.[4][5] The cointegration result reduces that concern for the long-run relationship, but not for every short-run estimate.[11]

The VAR system is not stable, so its dynamic magnitudes and forecast-style interpretations should be treated as indicative rather than precise.[4]

The requested new 12-month time-series forecast for inflation and the cedi was not available from the forecasting output provided.[10] The outlook section therefore relies on official projections and recent macro trends rather than a new statistical forecast.[10][12]

The category analysis covers food, housing, and transport, which are highly relevant but do not exhaust the CPI basket.[5] Services-heavy categories may show different pass-through behavior.[1][5]

Some literature estimates cited in policy and banking documents could not be independently verified from full-text academic papers in the material provided.[6] The theoretical conclusions are well supported directionally, but the report does not present new literature-derived elasticities as if they were directly re-estimated here.[6]

References

1. Ghana Association of Banks, “gab.com.gh” [link]

2. Ministry of Finance Ghana, “mofep.gov.gh” [link]

3. Ministry of Finance Ghana, “mofep.gov.gh” [link]

4. Ghana Statistical Service, “statsghana.gov.gh” [link]

5. Ghana Association of Banks, “gab.com.gh” [link]

6. Ghana Association of Banks, “gab.com.gh” [link]

7. Ministry of Finance Ghana, “mofep.gov.gh” [link]

8. Ministry of Finance Ghana, “mofep.gov.gh” [link]

9. Ghana Statistical Service, “statsghana.gov.gh” [link]

10. Ghana Association of Banks, “gab.com.gh” [link]

11. Ghana Association of Banks, “gab.com.gh” [link]

12. Ministry of Finance Ghana, “mofep.gov.gh” [link]

13. Ministry of Finance Ghana, “mofep.gov.gh” [link]

14. Ghana Statistical Service, “statsghana.gov.gh” [link]

15. Ghana Association of Banks, “gab.com.gh” [link]