Cost of Living Dips on Positive Speculation


Headline inflation falls to 14pc, still higher than last year




Even though headline inflation has shown a slight dip in July 2018, reaching 14pc, it surpassed the average rate of the recently concluded fiscal year by one percentage point.

The rate, which is an indicator of the cost of living, has dwindled by 0.7 percentage points since June, according to the latest consumer price index report from the Central Statistical Agency. Last fiscal year’s average headline inflation rate was 13pc, the highest in four years.

“The rate of price increases stabilised last month compared to previous months,” reads the report from the Agency. Food inflation has shown a considerable decrease, falling to 16.7 from 17.9pc reported in June. The inflation rate of non-food items decreased by an insignificant figure, 0.1pc.

“The prices of cereals, fruits, vegetables and spices increased compared to last month,” reads the report from the agency, “however, prices of bread meat, milk, cheese and eggs, butter and sugar, honey and chocolate showed a slight decline during the month,” the report adds.

However, Alemayehu Geda (Prof.), a macroeconomist and a university lecturer at Addis Abeba University, believes the figures do not reflect what is exactly happening in the market and the economy.

“The price of food items couldn’t decline by any means in the rainy season,” said Alemayehu. “Summer is known for shortages of supplies, because it is not harvest time but a period of cultivation,” he added.

Despite the government’s goal to keep the inflationary pressure in the single digits, at eight percent, the first month of the current fiscal year has registered an annualized double-digit inflation rate of 14pc, six percentage points above target.

The price hike on non-food components, which is the source of the higher inflation figure, has seen rate hikes last month as well, according to the Agency. These items include clothing and footwear; housing repair and maintenance materials especially, corrugated iron sheets and door set; cement; charcoal; household goods and furnishings; transport; healthcare and processed food and drinks.

Though Ethiopia has one of the lowest inflation rates in the region, it is still higher compared to neighbouring Kenya, a country that kept its inflation rate in single digits at 4.35pc. It is a slight hike from the 4.28pc reported in the previous month, according to tradingeconomics.com, a New York based online economic indexes indicator.

Alemayehu Teferi, director of household surveys and price statistics at the Agency, credits the current political stability of the country and positive speculations in the economy for the decline of the rate compared to last month.

“Following the recent decline of the dollar’s exchange rate in the parallel market, some items which were scarce in the market become available in the market,” he said, “such as sugar and edible oil.”

Alemayehu, the macroeconomist, disagrees.

“The exchange rate decline in the parallel market could only affect the non-food items, which are largely imported,” he said, “not on food items which are mainly produced locally.”

While the official exchange rate for one dollar has been determined at 27.92 Br, the parallel market rate had peaked at a historic rate of 36.6 Br two months ago. Nevertheless, the last one and half months have seen a significant decline of 19.4pc in the un-official market rates.



By FASIKA TADESSE
FORTUNE STAFF WRITER

Published on Aug 04,2018 [ Vol 19 ,No 953]


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