Ethiopia: Inflation Hits Record High in Five Years At 15.6%

Headline inflation, which was almost stagnant for the past three months, rose to a record high in five years, hitting 15.6pc last month, according to the latest consumer price index from the Central Statistical Agency (CSA).

An indicator of the cost of living, headline inflation has shown a 2.2 percentage point increase from last month. This increase was mainly driven by a surge in food inflation, which rose by three percentage points, reaching 20.9pc. Non-food inflation has also spiked to 9.8pc.

The swelling of both the headline and food inflation was attributed to the two-fold price increase of salt and spices, especially Red pepper, which is locally known as Berbere, according to the CSA's report, released mid last week.

Although a kilogram of Red pepper fetched 40 Br to 50 Br, its price had surged as high as 150 Br last month.

The report also indicates that the prices of major cereals showed a slight increase while the prices of pulses, vegetables and fruits rose to some extent. However, the prices of meat, milk, cheese and eggs, which was high the preceding month, showed a decline.

"Most of the items were in short supply due to the road blockage and the recent sit-in in some parts of the country," said a source from the National Planning Commission (NPC).

The Consumer Price Index (CPI), an index of the variation of the prices of retail goods and items, of 182.4pc, observed in February 2018, was higher than the corresponding 157.8pc CPI observed in February last year.

Even though the government targets to limit the inflation to single digits, headline inflation has been in the double digits since August 2017 and showed a fast increase since October 2017, with the devaluation of the Birr by 15pc The latter was a measure which was primarily aimed at promoting exports.

As an immediate action to control this inflationary pressure, the National Bank of Ethiopia (NBE) has increased the minimum bank deposit interest rate to seven percent, up from five. It also put in place a credit cap, except for exporters. The Office of the Prime Minister has also formed a high-level committee to combat any further escalation of the inflationary pressure.

Being operational since December, the committee, which consists of representatives from the NBE, the Planning Commission, the Ethiopian Petroleum Supply Enterprise, the Trade Competition & Consumer Protection Authority and the ministries of Finance & Economic Cooperation, Trade, and Industry, is providing monthly reports of the status of the market to the Office of the PM.

The Trade Practice & Consumers Protection Authority along with the Addis Abeba and the regional trade bureaus have also formed a committee late last month, aiming to arrest the ever-growing food inflation, which is pushing the headline inflation rate higher.

The Committee had planned to identify the items which are sold at an inflated price and to take measures on the wholesalers and retailers, starting from issuing written warnings to suspending licenses and filing lawsuits.

"Nonetheless, the committee couldn't proceed with the actions as the price had increased due to a supply shortage," according to a source close to the case. "And taking actions in such kinds of situations would cause further grievances."

The inflation rate in Ethiopia averaged at 16.23pc from 2006 until 2018, reaching an all-time high of 64.2pc in July of 2008 and a record low of -4.1pc in September of 2009. During the last fiscal year, the rate has remained in single digits, less than eight percent on average, until it jumped to double digits after the devaluation.

Last month, Guinea Bissau had the least inflation rate with -0.8pc, while the Central African Republic had the highest percentage of 38.04. Neighbouring Kenya recorded a 4.46pc inflation rate, according to tradingeconomics.com.

The rate could climb higher as the recent increase is just the beginning, according to Alemayehu Geda (Prof.), a macroeconomist and lecturer at Addis Abeba University (AAU).

"This is a first round increase," Alemayehu said, "as the devaluation could cause a budget deficit that may probably lead to the printing of money; the inflationary pressure will shoot up further."

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