10 June 2018

Ethiopia: Inflation Lies Dormant, Despite Supply Shortage

Unlike the previous months, food inflation has fallen

The latest consumer price index from the Central Statistical Agency (CSA) reports that the headline inflation for May stands at 13.7pc, similar to the previous month, despite harsh economic situations in the country.

The report indicates that headline inflation, an index of the cost of living, had stagnated last month. What is different from the figure in the previous month's report is that prices for food items have declined. Unlike the previous months, food inflation has fallen by 1.2 percentage points while non-food inflation has spiked by 1.4 percentage points. Non-food inflation has been mounting for the past four consecutive months.

A spike in prices of clothing, footwear, corrugated iron sheets, cement, household goods, furnishings and healthcare is the primary reason pushing non-food inflation rates up, according CSA's report.

Prices of cereals, fruits and vegetables remained nearly unchanged compared to last month and April. The price of pepper, a major staple in Ethiopia, has continued to decline though it has not returned to previous low levels. The costs of meat, traditional butter, milk, cheese and eggs showed increases during the month, according to the CSA report.

In recent months, the economy of the country has been in distress as the foreign currency scarcity deteriorated. Exports have not been yielding the expected revenues fueling the shortages of forex to cover imports.

Fortune'srandom assessment demonstrates that multiple imported food items have become scarce on supermarket shelves. Even prices of those items have shown 10pc 30pc escalations.

"The rise in the inflation rates of non-food items have been faster than their food counterparts in recent months," reads the CSA's report.

The country which had the highest inflation rate of 64.2pc in July 2008 and the lowest rate of -4.1pc in September 2009, targeted keeping inflationary pressure to single digit figures. For the past fiscal year, the government reported the average inflation rate at 7.2pc. However, this figure started to blow up in recent months, hitting double-digit numbers by August 2017.

Political unrests, which led to road blockages and sit-ins within parts of the country, caused supply shortages in the country and led to skyrocketing food prices according to government authorities. However, recently released reports by CSA are showing that inflationary pressures are sinking.

"Subsequent to the political instability of the country, the inflation rate have been sliding for the past three months," said Abraham Tekesete, minister at the Ministry of Finance & Economic Cooperation (MoFEC).

This is not easy for experts and some members of Parliament to swallow. Askale Tilahun (MP), raised her concerns about the precision of the data from CSA during the June 7, 2018 parliamentary session.

Atlaw Alemu (PhD), a university professor at College of Business & Economic at Addis Abeba University (AAU), shares her view.

"Unless the reports are made with strategic intentions, an action taken to influence people, practically all prices of consumable item have skyrocketed," she said. "Beyond the numbers and the empirical evidence, sensory experience by observations demonstrates this."

Though the double-digit inflation rate for the country is high, the rate seems moderate as compared to the continent's average rates. The highest rate of 161.2pc is in South Sudan and the lowest is registered for Somalia at -3.6pc. Still, the rate is higher compared to neighboring Kenya that managed to keep its inflationary pressure at a single digit, 3.95pc, which is a slight rise from 3.7pc in the previous month, according to tradingeconomics.com, a New York-based web site that provides information on economic indicators, exchange rates and stock market indexes of 196 countries.

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