6 October 2018

Ethiopia: Headline Inflation Slides Despite IMF's Worry

Though the International Monetary Fund indicated that inflation could remain a source of macroeconomic risk this fiscal year, the government has reported that the rate dropped to 12pc in September 2018.

The latest consumer price index from the Central Statistical Agency shows that inflation rate slid down by 1.4 percentage points from the previous month. Inflation, which is tied to the cost of living, has been showing a decline for the past three months.

Food inflation stood at 13.5pc, showing a 2.5 percentage point decrease from the previous month. Non-food inflation has shown no change since last month, staying at 10.3pc.

Last month's rate is lower compared to last fiscal year's average rate of 13pc, the highest in four years, despite the government's plan of keeping inflation at or below the eight percent mark.

"The prices of bread, cereals, meat, milk, cheese and eggs, butter, vegetables and spices increased last month," reads the report from the Agency. "However, sugar, honey and chocolate showed a slight decline during the month."

Similar to July 2018, some non-food items including clothing, footwear, corrugated iron sheets, door sets, cement, furnishings, transport, healthcare, food and drinks saw increases last month, according to the report.

The Statistical Agency's report was released a week after the Fund's release of an Article VI assessment conducted by its staff that analysed Ethiopia's economy. The team, assessing Ethiopia's economy for two weeks, projected that the gross domestic product of the country would grow by 8.5pc in the current fiscal year.

In the report, the Fund warned that inflation, public sector borrowing and external imbalances would remain as sources of macroeconomic risk. It urged the government to reduce public sector borrowing and bring inflationary pressure back to its target with tight monetary and fiscal policy stances.

Eyob Tekalign, the commissioner of the National Planning Commission, states that the government is working on addressing macroeconomic issues.

"We are working on significant, cautious and well-researched reforms to improve the situation," he told Fortunetwo weeks ago.

For this fiscal year, the government plans to keep inflation at or below eight percent. However, inflation has been swinging between 12pc and 14pc during the first quarter of the fiscal year. In the past five years, the nation's inflation rate averaged 9.14pc, which is in line with the government's target of keeping it in single digits.

The rate makes Ethiopia look good in the region. In the East Africa region, South Sudan had the highest inflation rate of 122pc, while Somalia registered the lowest rate at -3.6pc, according to tradingeconomics.com, a New York-based online economic indexes indicator.

However, Ethiopia's rate is much higher than neighbouring Kenya, which kept inflation in the single digits, 5.7pc, though higher than the 4.04pc it registered in the previous month.

To stabilise the macroeconomic situation, the IMF recommends that the government intensify its efforts to bring the inflation rate back to its single digit target.


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