10 February 2018

Ethiopia: Headline Inflation Dips Despite Price Surge in Food Items

The rate showed a 0.2pc decline from the previous month

The headline inflation, an indicator of the cost of living, that had stagnated at 13.6pc for the past two months showed a slight downtick to 13.4pc in January 2018, according to the Central Statistical Agency (CSA).

In the last two months of 2017, the headline inflation was 13.6pc, but it went down in January mainly due to a drop in the non-food inflation rate by a percentage point to 8.4pc.

Though the headline inflation has slightly gone down, food inflation last month has ballooned to 18pc due to the religious holidays of Christmas and Timket, pushing the price of items such as meat, milk, cheese, eggs, oil and butter, pulses, vegetables and fruits up.

The month-on-month general Consumer Price Index (CPI), which measures changes in the price level of a number of consumer goods and services, has shown an increase of 0.4pc compared to the preceding month, reads the report from CSA.

During the Ethiopian Christmas, a chicken was sold as high as 450 Br- a 10pc price spike since the Ethiopian New Year. The cattle market has also shown a considerable increase- 1,000 Br a cattle on average.

Unlike the previous months, the prices of major cereals showed a decline, according to CSA's report.

Despite the drop in the headline inflation, the month-on-month inflation rose by 0.4pc in January, indicating that the prices of goods were higher in the past month than the preceding one.

Nonetheless, the price of goods including clothing and footwear, housing and energy, construction materials, household goods, furnishing, health care, and food and drinks had increased in the past month with Khat registering a rapid growth amongst all items under review. The Khat market has been destabilised by the inter-regional conflict in Oromia and Somali regional states.

The inflationary pressure has remained in the double digits for the past six months despite the government's plan to keep it below nine percent- a single digit.

Opposed to the target set in the second edition of the Growth & Transformation Plan (GTP II), the headline inflation has been in double digits since August 2017, which was then fueled by the hike in cereal prices and later Khat.

Despite the tight monetary policy adopted by the National Bank of Ethiopia (NBE), which imposed credit caps and raised the interest rate levied on deposits on commercial banks, a high rate was registered.

The regulatory body, the central bank, has also instructed all commercial banks to issue letters of credit (LC) equivalent to the amount stated in the invoices of any goods- as a move to narrow the exchange rate gap between the official and parallel market.

Double-digit headline inflation has been posted by the economy that showed a 10.8pc growth in the past fiscal year and had achieved single digit inflation for two successive fiscal years, according to reports from the NBE.

Yet, the rate is, however, below the projection of analysts, such as Fitch Ratings Inc, one of the three giant credit rating agencies, which forecasted the inflation rate would reach as high as 15pc.

But for Alemayehu Geda (Prof.), a macroeconomist and lecturer at Addis Abeba University (AAU), the decline in the inflation rate last month is not justifiable.

"In the country that has a forex crunch coupled with devaluation, population growth and urban migration, inflation can't go down," he told Fortune. "Everything in the market is showing a remarkable price increase."

To stop a further rise in prices of goods, the Prime Minister's Office has already formed a new high-level committee to control inflation rate.The Committee composed of the members from the NBE, National Planning Commission and Trade Practice & Consumers Protection Authority (TPCPA), is conducting monthly assessments and reports to the PM office with recommendations.

The price escalation of food items that pushed the inflation rate is the new focus area for the government, according to Echisa Dame, director of Trade Information at TPCPA.

"We are working with city administrations and regional trade bureaus to kick-off assessments on those who are inflating food items," Echisa told Fortune.

Since the announcement of the devaluation in October, the Authority has identified 17 non-food items to investigate the causes of the price increase. Importers, manufacturers and wholesalers of these products were under investigation. Among the companies, some, including steel and pharmaceutical products manufacturers, importers and wholesalers, were hauled to court.


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