The One-Way Street: Why Prices in Ghana Rise with the Dollar, But Never Fall

By Lord Fiifi Quayle

It is a common, frustrating observation across Ghana: the moment the US Dollar gains strength against the Cedi, prices for everything from rent to cars to imported goods shoot up. Yet, when the Cedi enjoys a period of appreciation, those prices remain stubbornly high. The local saying that “prices increase yearly” is not just a complaint. It is an accurate description of a fundamental economic distortion.

The Dollarisation of the Ghanaian Economy

This phenomenon is not a misconception by consumers, but a real market behavior rooted in two complex economic concepts: Asymmetric Exchange Rate Pass-Through and Downward Price Stickiness.

The Economic Explanation: A One-Way Price Hike

When economists talk about Exchange Rate Pass-Through (ERPT), they are describing how much a change in the Cedi-Dollar rate affects the final price of a product. In a healthy, competitive market, this effect should be symmetrical: a 10% drop in the Cedi’s value should lead to a 10% price increase, and a 10% rise in the Cedi’s value should lead to a 10% price decrease.

However, in Ghana, the pass-through is asymmetric . It’s a one-way street:

When the Dollar Rises (Cedi Depreciates): Businesses quickly and fully pass on the increased cost of replacing their imported stock. This is a survival mechanism, ensuring they can afford to restock their shelves or replace their inventory (like cars) at the new, higher dollar-equivalent cost.
When the Dollar Falls (Cedi Appreciates): Businesses choose to keep prices high. This is known as Downward Price Stickiness .They exploit the opportunity to widen their profit margins, citing other non-exchange rate costs—such as high freight, port charges, and local transportation—as justification for maintaining the higher price floor .

In essence, periods of Cedi depreciation allow businesses to establish a new, higher price point, which they are then extremely reluctant to abandon, even when their costs temporarily drop.

The Dollarization Trap: Why Landlords and Car Dealers Hedge

The sectors most notorious for this behavior, real estate and car sales are also the most dollarized . For a landlord or a car dealer, pricing in US Dollars is a rational defense mechanism against the Cedi’s chronic volatility.

For Landlords: Construction materials are largely imported. If a landlord accepts Cedi rent and the Cedi depreciates, the real value of their income and their ability to afford future maintenance or reinvestment is eroded. Pricing in USD protects the real value of their asset .
For Car Dealers: Every vehicle is imported. The dealer’s main concern is the replacement cost of their inventory. If they sell a car for a Cedi amount that quickly loses value, they cannot afford to buy a new car of the same value to replace it. Pricing in USD eliminates this risk.

This practice, while illegal under the Foreign Exchange Act of 2006, persists because it is a market verdict on the lack of confidence in the Cedi as a stable store of value .

The Real Culprit: Structural Weakness

The problem is not just greedy businesses; it is a structural weakness in the Ghanaian economy. Even when the Cedi strengthens, other costs remain high, acting as a persistent floor under prices: Factor Impact on Prices Import Dependence Ghana imports over 70% of its consumer goods, making the economy highly vulnerable to global price shocks and exchange rate swings . Logistics Costs Freight, shipping tariffs, and port charges are often dollar-linked or subject to high local inflation, offsetting any gains from a stronger Cedi . Lack of Competition In some sectors, a lack of robust competition allows traders to maintain high margins without fear of being undercut, removing the incentive to lower prices.

The Need for Cedi Credibility

The consumer’s observation is correct: the Cedi’s instability is being weaponized against them. The asymmetric pricing behavior contributes to persistent, imported inflation, which erodes purchasing power and undermines the Bank of Ghana’s efforts.

To break this cycle, the focus must shift from blaming businesses to addressing the root cause: the lack of long-term credibility in the Cedi. Until the Cedi becomes a currency that people want to hold one that offers stable purchasing power and predictable yields businesses will continue to hedge their bets in the Dollar, and the Ghanaian consumer will remain trapped in a cycle of perpetual price increases.