Inflation is the rate at which money loses purchasing power. Stated that way it sounds abstract. In practice it decides whether your savings account is a store of value or a slow leak, whether a business is genuinely growing or merely repricing, and whether a 15% return is a gain or a loss.
The single most useful habit this article can give you is the distinction between a nominal number and a real one.
Nominal versus real: the only calculation that matters
A nominal return is what you were paid. A real return is what you were paid after inflation has taken its share. The approximation is simple subtraction:
Real return ≈ nominal return − inflation rate
So a savings account paying 12% during 23% inflation delivers roughly −11% in real terms. The balance on the statement grew. What that balance can buy shrank by about a tenth.
For precision, the exact formula is (1 + nominal) ÷ (1 + inflation) − 1, which matters when both figures are large. At 12% nominal and 23% inflation the exact answer is −8.9% rather than −11%. The approximation is adequate for most decisions; the sign rarely changes.
How inflation is measured in Ghana
The Ghana Statistical Service publishes the Consumer Price Index monthly. It tracks a basket of goods and services weighted by typical household spending, and the headline rate is the change over the same month a year earlier.
Two things to understand about any CPI figure:
It is an average, and your inflation rate is probably different. The basket reflects typical national spending. If you spend a larger share of your income on transport and imported food than the average household, your personal inflation is higher than the headline when those categories lead. Food and non-food inflation are published separately for this reason.
Year-on-year figures carry base effects. If prices spiked in one month last year, the year-on-year rate will appear to fall this year even if prices are still rising — simply because the comparison point is high. A falling inflation rate means prices are rising more slowly, not that prices are falling.
Our Market Price Barometer tracks a fixed basket of everyday Ghanaian goods month to month, which is a narrower but more tangible companion to the official index.
What inflation does to savings
Rank your options by their real return, not their advertised rate:
| Instrument | Typical position | Real outcome |
|---|---|---|
| Current account | Pays little or nothing | Loses roughly the full inflation rate |
| Savings account | Pays well below inflation in most periods | Negative real return |
| Treasury bills | Tracks closer to prevailing rates | Can be positive or negative; check against current inflation |
| Equities | Variable; no guarantee in any single year | Historically better over long periods, with real volatility |
Treasury bills are the instrument most Ghanaian savers reach for when inflation is high, because the yield adjusts. But the comparison must be made each time: a T-bill yield below current inflation is still a real loss, however much better it is than a savings account. See treasury bills in Ghana.
What inflation does to businesses
Inflation affects a company through several channels at once, which is why high-inflation periods produce such divergent corporate results.
Revenue that grows without the business growing
If a company's sales rise 20% during 20% inflation, it sold roughly the same quantity at higher prices. Volume is flat. When reading results, always ask whether growth came from price or from volume — the two have completely different implications for the future.
Pricing power decides who survives
The central question for any business in an inflationary period is whether it can pass rising costs to customers. A company selling an essential product with few substitutes usually can, and margins hold. A company selling something discretionary, in a competitive market, usually cannot, and margins compress.
This is why inflation sorts a market so sharply. Same economy, same cost pressure, opposite outcomes.
Working capital gets more expensive
Inventory and receivables must be financed at higher nominal values, and credit itself costs more as interest rates rise in response to inflation. A growing business can run short of cash in an inflationary period precisely because it is growing.
Borrowers gain, lenders lose — at fixed rates
Unexpected inflation erodes the real value of fixed-rate debt, which benefits the borrower. This is why inflation is sometimes described as transferring value from savers to borrowers. It only holds for debt already fixed; new borrowing is repriced to compensate.
What it does to share prices
Three effects pull in different directions:
- Higher interest rates typically follow inflation, and higher rates make interest-bearing alternatives more attractive relative to equities. See interest rates and stock markets.
- Nominal earnings rise for companies with pricing power, which supports their share prices in nominal terms.
- Real returns compress. An index up 15% in a year of 25% inflation has lost ground, even though every chart points upward.
Over long horizons, equities in a profitable, price-setting business are one of the few assets that can plausibly outpace inflation, because the underlying earnings inflate too. Over any single year, they offer no such protection. The distinction between those two statements is where most disappointment originates.
Practical responses
Keep only what you need in cash. An emergency fund is a necessary cost, not an investment. Size it deliberately and stop there.
Compare every rate with current inflation. Make this automatic. A 14% deposit rate is only good news relative to a specific inflation figure.
Prefer businesses with pricing power if you hold equities through an inflationary period. Essential products, strong brands, few substitutes.
Watch currency alongside prices. In an import-dependent economy the exchange rate and inflation are linked — a weaker cedi raises imported goods prices, which raises the index. See what drives the cedi.
Judge your portfolio in real terms. Record the inflation rate alongside your returns each year. It is a sobering habit and a clarifying one.
Frequently asked questions
Does falling inflation mean prices are coming down?
No. It means prices are rising more slowly than before. Prices falling outright is deflation, which is rare and brings its own problems.
Why is my experience of inflation worse than the official figure?
The CPI is weighted to average national spending. If your spending is concentrated in categories rising faster than average — transport, imported food, rent — your personal rate is higher. Both figures are correct; they measure different baskets.
Are treasury bills a reliable hedge against inflation?
They respond to inflation but do not guarantee a positive real return. Compare the current yield with the current inflation rate each time you roll them over.
In short
Subtract inflation from every return before you judge it. Hold the minimum sensible amount of cash. Prefer businesses that can raise prices. And treat the official index as a well-constructed average that is probably not your own rate.
