Introduction

One of the defining characteristics of the Ghanaian macroeconomy over the past 40 years has been its high, and often variable, rates of inflation. Inflation was particularly high and variable in the politically turbulent 1970s and early 1980s, but has persisted throughout the gradual economic recovery since 1983. Though it has been lower and less variable in the latter period, it still remains high in absolute terms and by comparison with many other countries.

High and variable inflation is typically seen as a symptom or indicator of macroeconomic instability. But it is also argued that macroeconomic instability in general, and inflation in particular, hits the poor hardest (Cardoso, 1992; Easterly and Fischer, 2001). There are two aspects of the suggested impact of inflation on the poor. First, poorer people typically have less flexibility in responding to adverse changes in their environment. The empirical evidence for this finding, however, is typically based on middle-income countries, notably in Latin America. Common rationales include the erosion of the value of savings and of the real value of minimum wages typically fixed in nominal terms, and the fact that the use of a variety of savings and investment means (including in foreign currency) for hedging against inflation is more easily available to richer groups. The applicability of these arguments to low-income African countries is less clear, however. Many of the poor may not hold their assets in financial terms, and few typically work in formal wage employment, and so do not benefit from minimum wage protection.