9 September 2017

Ethiopia: Double Digit Inflation Flags Unhealthy Economy

Photo: Addis Fortune
Addis Ababa (file photo).

The inflation rate in Ethiopia reached a 22-month high following a persistent rise of food costs, especially on cereal products, lifting the headline inflation to 10.4pc, signalling unhealthy macro economy in the country.

Announcing the result, the Central Statistical Agency (CSA) linked the rise in inflation to the hike in prices of foods by 13.3pc in the past month, as compared to the one observed during the same period last year. This is a major setback for the government which targeted to keep the inflation rate in single digit, below eight percent.

Prior to last month, the government had managed to register single digit inflation for more than two and half years. However, the inflation rate has been surging at a quick pace since October 2016.

The growth in inflation is conforming to the projection given by BMI, a Fitch Group Company and think tank, six months ago. The think tank forecasted that the country would experience a surge in inflation throughout the period of 2017 owing to rise in food insecurity and erratic rainfall.

"It is visible that the inflationary pressure is driven by low agricultural productivity," said Tadele Ferede (PhD), an economist and a lecturer with over two decades of experience. "There is a wide mismatch between the demand and supply."

Stronger price increase was observed in teff, maize, wheat, and Barely and Sorghum.

"We have seen a persistent increase in the prices of cereals throughout the country," said Biratu Yigezu, director general of the Agency.

Among cereals, the largest increase is seen in the prices of teff and maize. The former has been sold as high as 30Br a kilogram whereas the latter retailed at a price of 10 Br per kilogram in Ehil Gebeya, the largest cereal market in Addis Abeba.

"There is a high shortage of teff and maize," said Salem Abdela, who is a retailer of cereals in Ehil Gebeya. Dabe Nigussie, a wholesaler of cereals such as Maize and Teff, believes that the shortage will be severe in the coming month.

"The main teff and maize producing areas have been hit by disaster," said Dabe. "I have seen many farmers crying over the attack of the armyworm on the maize, indicating that the under productivity will continue."

Starting from South America, the Army worm has attacked 22,900ha of land covered by maize after being first observed in YekiWereda, South Nation Nationalities &Peoples' Regional States (SNNPR).

The rise in prices of food is exacerbated by the rise in drought affected areas throughout the country. The number of people who are in need of urgent assistance rose to 8.5 million last month from 7.8 million in April, 2017.

In addition, strong money supply growth can be a reason for the inflationary pressure for Tadele, the economist.

"The government should review the monetary as well as the fiscal policy towards inflation," said Tadele. "The inflationary pressure signals unhealthy macro economy."

In the same token, BMI forecasted that the money supply growth will also play a major role for the surge in inflation in 2017. The money supply will result in pressure on the prices of food and fuel in 2017, the report projected.

In 2015/16, the amount of money circulation in the economy has reached close to half a billion Br-20pc growth compared with the preceding fiscal year. The surge in inflation is reported in the year when the government is trying to achieve a double digit economic growth at 11.2pc.

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