Double-digit inflation continues to hammer Ethiopia By Keffyalew Gebremedhin
Ethiopia’s Central Statistical Agency (CSA) today released the October 2011 inflation data, which once again shows that headline inflation remains very high at 39.8 percent. With respect to the rate of change in monthly inflation, however, the Agency hinted that it was stabilizing, especially after April 2011 and that variances observed in subsequent months were due to ‘seasonal and other short-term effects.’ The information the data transmits, nonetheless, is that the said stability is rather as faint as the notional declines in the rates since September.
The CSA also reported that the 12-month moving average in October rose by 29.1 percent — with food inflation jumping by 32.3 percent, which it remarked was a ‘non-negligible increase’ throughout the country. Non-food inflation rose by 24.5 percent.
Monthly comparison shows that headline inflation has moved up by 1.9 percent, compared to September’s 2.6 percent increase and food inflation by 2.3 percent compared to 3.4 percent. With respect to non-food inflation, its rise has remained at 1.3 percent, the same level with that of September.
Therefore, the continuing rise in food inflation denies validity to the above claim by the Agency that the overall rate is stabilizing. This is so in view of the fact that food groups and their weights constitute major components of Ethiopia’s Consumer Price Index (CPI). In October, food inflation stood at 51.7 percent, with no decline observed since July 2011. This, CSA reported, was due to the rise in prices across range of foods, especially wheat, maize, barely, sorghum, pulses, meat, butter, coffee & tealeaves, potatoes, tubers and stems. Its persistence is a pointer but to stabilization.
The worst of food inflation was borne by Benishangul-Gumuz at 92.8 percent, followed by Gambela 68.9 percent, SNNP 67.0 percent, Oromia and Amhara52.4 and 50.6 percent, respectively. The other regions, namely, Addis Abeba 26.6 percent, Afar 36.8 percent, Dire Dawa 36.3 percent Somali 29.7 percent and Tigray 36.7 percent also suffered high food prices, albeit relatively lower than the other four regions.
The distribution of overall inflation in the regions follows similar pattern: Addis Abeba 25.4 percent, Amhara 40.0, Afar 33.2 percent, Harari 25.8 percent, Benishangul-Gumuz 57.0 percent, Dire Dawa 26.3 percent, Gambela 49.9, Oromia 41.5 percent, SNNP 46.8 percent, Somali 28.9 and Tigrai 34.2 percent.
While domestic factors are responsible for these endless food price increases, such as macroeconomic instability, low production and the current drought, volatility in world food prices are also known to have affected Ethiopian consumers. In its Food Price Watch, the World Bank this month underlined the pass through of global prices to domestic prices depends on country specific multiple factors, chief of which are:
“The degree of integration of domestic and international markets, transport conditions, oil and fertilizer prices, and national policies such as taxation rates. Recently, there have been multiple country-specific factors driving the observed domestic price volatility. For example, currency depreciation; high inflation; and the outbreak of fighting in the southern states of Blue Nile and South Kordofan, both key production zones of sorghum, have coalesced to explain price volatility in Sudan. Export restrictions have just recently been introduced in South Sudan and Ethiopia — in the form of export bans — for maize”
In this connection, also recall that, the Bank’s February 2011 Food Price Watch had specifically observed in the case of Ethiopia: “While a number of other macroeconomic factors were also in play — notably the depreciation of the Ethiopian currency, birr, which lost 25 percent of its value against the U.S. dollar between June 2010 and June 2011 — much of this increase was driven by the food component of the Consumer Price Index (CPI), which increased by 45 percent during this period” (http://www.worldbank.org/foodcrisis/food_price_watch_report_feb2011.html).
Based on historical experiences, the European Central Bank’s (ECB) Principal Economist Isabel Vansteenkiste in What Triggers Prolonged Inflation Regimes? —A Historical Analysis (2009) points out that the origins of inflation episodes lie in a combination of policy mistakes, global shocks and structural factors. In that, her argument seems to lend its support to the 2008 IMF conclusion that since inflation is higher in Ethiopia than in neighboring countries, domestic factors, including demand pressure and expectations should be the underlying factors.