11 March 2017

Ethiopia: Food Inflation Hits Nine-Month High As Vegetable Prices Soar

Photo: Addis Fortune
Atikilt tera, main supplier of fruits and vegetables around piazza.

This happened in a month where fasting season began and salary adjustment for civil servants were made

Food inflation soared to its highest level in nine months in February, reaching 7.8pc similar to last February. One of the major factors behind the inflation was the rise in the prices of vegetables. This comes during the beginning of the Easter fasting season, as well as just after an announcement of a salary adjustment for civil servants.

Last week, the Ministry of Trade reported that there were signs of price increases by some retailers.

"We have pursued measures against some of the retailers who raised their prices after the salary raise," said Aled Ziad, state minister of Trade. He, however, refrained from disclosing the number of retailers who increased prices deliberately.

The spike in the prices of tomatoes, chilies, and cabbage contributed to the surge in inflation during the preceding month.

Tomatoes experienced maximum inflationary pressure. It showed a three-fold rise since the beginning of the fasting season. Currently, the wholesale price of tomatoes has reached 32Br while the retail price is as high as 37Br.

Retailers say the recent unrest in Oromia Regional State adversely affected the supply of tomatoes in high-production areas such as Meqi.

"The farmers didn't plant at the right time," said Tekalegn Shumete, a wholesaler at Atkilt Tera, the largest vegetable market in Ethiopia.

The price of chilli also doubled to a little over 80 Br a kilogram during the past month.

"There was a low supply from chilli pepper producing areas especially from the Amhara Regional States," said Melese Shumetie, who retails chilli at Atkilit Tera.

But, since the beginning of this month, prices have started to stabilise to between 40 and 45 Br per kilogram.

Tsehay Gule, a mother of five, says the rise is steep compared to past fasting seasons.

"This is unusual," she said. "We always expect a surge in the prices of vegetable during the fasting season, but this is beyond what we expected."

Naod Mekonnen, an economic and development policy researcher, believes low agricultural productivity has resulted from the inflationary pressure.

"The recent drought and growth in demand have contributed a lot to the surge in food products," he said." This will have short-term effects on low-income households."

On the other hand, non-food inflation hit a two-year low in February, as businesses resorted to price cutting to boost sales. The trend was seen largely in the products of khat, clothing and footwear, firewood, and household goods and furnishings. It eased to 6.2pc last month from 7.4pc in January.

General inflation hit seven percent in February, from five percent at the same time last fiscal year. This helped maintain inflation rates below eight percent for 12 months in a row.

Last week, a new report released by BMI, a Fitch group company and think tank, projected that Ethiopia would experience a surge in inflation in 2017, due to an increase in food-insecure people and erratic rainfall.

In addition, strong money supply growth was also another factor for the inflationary pressure in the coming months. Broad money supply, which is money circulated in the domestic economy, reached over 445 billion Br in 2015/16, reflecting a 20pc annual expansion. In the first quarter of the current fiscal year, it soared by almost 22pc.

The money supply will result in pressure on the prices of food and fuel, the report added.

"This is acceptable as the country's money supply growth is unpredictable and unclear," says Naod, the economist.

The report comes four months after the country saw the lowest rate of inflation since the country was hit by the drought in decades, as well as the unrest that began two years ago and reached boiling point last August.

Over the past decade, inflation rates averaged 16.7pc, reaching a record high of 64.2pc in July 2008 and an all-time low of four percent in September 2009.

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