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21st of January 2018

Ethiopia



Living Cost Lingers at Five-Year High

The inflation rate has reached 13.6pc chiefly owing to the rise in Khat prices

Cost of living, measured by the year-on-year inflation rate, remained unchanged in the past month, staying at the five-year high of 13.6pc, as a fall in the prices of food products was offset by the rising cost of Khat, according to the Central Statistical Agency (CSA).

The nation’s inflation, which has been ballooning over the past two months compared to the same period last year, unprecedentedly stagnated in the previous month, chiefly due to a drop in food inflation from 18.1pc to 17.4pc.

Again, the month-on-month inflation, showing a price change in the last two successive months,  declined by 0.2pc in December, indicating that the prices of goods were lower in the past month than the precedingone.

The inflationary pressure remained high despite the government’s plan to keep it below nine percent- in a single digit.

Contrary to the target set to be achieved 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 bulge in cereal prices.

Such a rate is reported despite the tight monetary policy adopted by the central bank, which raised the interest rate levied on deposits and imposed credit caps on commercial banks.

The regulatory body, National Bank of Ethiopia (NBE), has also instructed all commercial banks to issue a letter of credit equal to the amount stated in the invoices of any goods- as a move to narrow the exchange rate gap between the official and black market.

Yohannes Ayalew (PhD), vice governor and chief economist at the central bank, believes the year-on-year inflation rate registered in the past month does not show the full picture.

“Inflation rate is dynamic. Thus, it is difficult to conclude there is inflationary pressure in the country by comparing only the year-on-year inflation,” Yohannes told Fortune. “The slump in month-on-month inflation clearly shows that there are no demand pull or cost push factors to cause a price upsurge.”

Nonetheless, the price of goods including clothing, footwear, housing, construction materials and furniture showed a price upsurge in the past month, while Khat has experienced a rapid growth amongst all items under review during the same month.

The income source of millions of people in Ethiopia, Khat’s market has been destabilised by the inter-regional conflict and the protests across the nation last month.

In Addis Abeba, it has shown a three-fold increase in price owing to the gap in the supply and demand. Being a retailer of Khat for over 15 years around Saris, Qirqos District, Muhammed Salah, 47, a father of three, had never experienced such an uptick in the price.

“Ever since the unrests began in the eastern parts of the country, the shortage increased affecting our livelihoods,” said Muhammed, who sells Khat from Harer for as high as 150 Br in the past month.

A steady increase in the headline inflation is registered in an economy that showed a 10.8pc growth in the past fiscal year and had achieved a single digit inflation for two successive fiscal years.

An economist who has researched price development in the country and a lecturer at Addis Abeba University (AAU) for over two decades, Atlaw Alemu, warns such growth signals an unhealthy economy.

“Even though it is difficult to control inflationary pressure in such periods when the effects of devaluation exist, the soar in prices of all items can be controlled by the government by boosting local production,” said Atlaw.

The rate is, however, below the projection of analysts, such as Fitch, which has forecasted that inflation rate would reach 15pc.

To implement stringent control on prices of goods, the Prime Minister’s Office has already formed a new high-level committee to control devaluation-driven inflation rate.

By SAMSON BERHANE FORTUNE STAFF WRITER

Published on Jan 06,2018 [ Vol 18 ,No 923]

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