Addis Abeba — In one of the most significant fuel price increases in recent years, the Ethiopian government has raised retail fuel prices by up to eight birr per liter overnight.
Effective as of October 8, 2024, the price of a liter of gasoline has been increased to 91 birr, while diesel prices have surged to 90 birr. Just the previous day, before 6:00 PM, consumers were paying 82.60 birr for a liter of benzene and 83.74 birr for diesel.
This latest price revision represents an increase of 10.3% for benzene and 7.8% for diesel. Additionally, the price of kerosene has experienced a sharp rise of 7.8%, reaching 90.28 birr per liter.
A macroeconomist speaking to Addis Standard on the condition of anonymity cautioned against the recent fuel price hike, warning that it could exacerbate the already high inflation rate.
"Historically, increases in fuel prices have been closely linked to inflation," he noted. "Recent price adjustments also had an inflationary effect."
According to the macroeconomist, fuel is a key item that significantly affects the non-food component of the Consumer Price Index (CPI), a crucial economic statistic published monthly.
"The ripple effect on other commodities could further intensify the already severe cost of living," he warned.
According to the latest report from the Ethiopian Statistical Service, fuel, along with water and electricity, contributes 16.8% to the non-food component of the CPI.
The same report indicated that year-on-year inflation reached 17.2% in August 2024, with non-food inflation at 14.7% and food inflation at 18.8%.
Consumers have also expressed concern over the recent fuel price increase.
Yohannes Daniel, a heavy cargo truck driver, expects transportation costs to rise following the recent fuel price adjustment. "At present, a quintal is transported for 330 birr," he noted. "With the recent increase, this cost could go up to 400 birr."
A Toyota Hi-Ace Dolphin D4D owner who provides a taxi service from Megenaga to Legetafo told Addis Standard that the rising fuel costs are already having a significant impact on his daily earnings.
"We are facing price hikes due to the increasing cost of fuel and spare parts," he highlighted. "Although passenger fares have seen slight increases in recent years, our daily revenue falls well short of what is needed to sustain our livelihoods."
During a press briefing held yesterday, Ahmed Tussa, an advisor to the Minister of Trade and Regional Integration, explained the government's rationale for increasing retail fuel prices.
He attributed this decision to two primary factors: the fluctuating global fuel prices and the recent implementation of macroeconomic reforms, which have led to an appreciation of the foreign exchange rate.
Ahmed noted that while global oil prices had temporarily declined to $72 per barrel, they have since risen to $80 due to regional instability and related factors. He cautioned that further price increases are possible if this trend persists.
Given the current foreign exchange rate, Ahmed explained that the cost of importing and transporting fuel to the Ethiopian market could elevate prices to as much as 120 birr per liter.
"To mitigate the impact, the government plans to absorb the majority of the cost increase, particularly for diesel and kerosene, by covering 80% of the price difference," he stated. "The remaining 20% will be passed on to consumers as part of the government's strategy."
The advisor also noted that for benzene and aviation fuel, the government will cover 75% of the price increase through subsidies, with the remaining 25% passed on to consumers.
"Over the next three months alone, the government will incur an additional cost of approximately 33 billion birr to subsidize fuel prices," said Ahmed. "If global prices remain at their current levels, the annual subsidy could exceed 100 billion birr."
Introduced on 28 July 2024, the new macroeconomic reforms are designed to address a long-standing distortion in Ethiopia's economy.
Prior to the implementation of these reforms, commercial banks in Ethiopia were trading the Ethiopian birr at an exchange rate of approximately 56.55 birr per US dollar.
By October 8, 2024, the buying rate at the Commercial Bank of Ethiopia (CBE) had risen sharply to 112 birr per dollar.
The Ministry of Trade and Regional Integration issued a statement yesterday, emphasizing that the government's decision to maintain previous fuel prices until October 8 was motivated by a desire to mitigate the economic burden imposed by recent macroeconomic policy adjustments and ensure a peaceful holiday season for the public.
Sign up for free AllAfrica Newsletters
Get the latest in African news delivered straight to your inbox
The statement further noted, "However, to sustain these prices over the past two months, the government had to absorb a significant cost of 35.8 billion birr, representing the price increase that would have occurred if the price adjustment had been implemented immediately."
According to the Ministry, the delay in adjusting retail fuel prices following foreign exchange management reforms has resulted in domestic fuel prices being half of those in neighboring countries.
"This has led to a rise in fuel smuggling and black market activities," the statement reads.
Late last week, the National Bank of Ethiopia (NBE) announced the allocation of $175 million to the foreign exchange market, with plans to conduct a sale to support upcoming fuel import payments.
These funds are specifically designated to meet the foreign exchange needs of the Ethiopian Petroleum Supply Enterprise (EPSE), the country's primary importer of fuel and related products.
