Food Prices Escalate as Inflation Hits Five Month High

Inflation unexpectedly rose to a five-month high in October as the country felt the effects of the overvalued birr.

The consumer price index advanced at 7pc year-on-year, comparing October 2016 to October 2015 , according to the Central Statistical Agency.

The reading marked the tenth month of single digit inflation. In addition, the inflation figures came in below the eight percent target set by the government.

Two months ago, the country saw the lowest inflation rate ever since 2014, at 5.6 percent.

Some economists argue the rise may prompt the National Bank to tighten its monetary stance, despite the World Bank’s urging to devalue its currency.

Food prices, which carry a heavy weighting in the basket of goods used to calculate the consumer price index, grew by 6.1 percent year on year, accounting for the lion’s share of the total rise.

The CSA pinpointed a wide range of food products that have undergone price increases, particularly sugar and coffee, which showed the highest rise in their prices during the last month.

The increase in the price of sugar is linked with a decline in the supply, according to retailers Fortune spoke to.

“The price spiked from 17.4 Br to 20 Br due to unavailability of sugar in cooperative unions,” said Yigerem Tesfahun, a retailer along Gabon street.

The per capita consumption of sugar in Ethiopia stands at six kilograms. To meet this demand, the country imports no less than 400,000 tons of sugar and produces around 300,000 tons of sugar every year.

Currently, the government is constructing eight sugar factories across the country, two less than the originally planned.

Coffee is also among the food items that showed a spike in price.

The country produces over 280,000 metric tons of coffee annually. Of this, nearly half is consumed domestically.

Coffee showed a more than 20pc rise on the international market, to 3.1 dollar per kilogram, according to Trading Economics, a company which provides data for over 300,000 indicators.

The revenue from export of coffee had a 33 pc share in Ethiopia’s total export earnings for 2015/16.

The decline in world prices of coffee by 14 pc contributed greatly to the fall of export earnings in 2015/16. However, the trend reversed during this fiscal year, with earnings on the rise since April 2016.

Since November 2016, the retail price of coffee has escalated from 65 Br to 85 Br, according to Amanuel Mengistu, a restaurant owner in Addis Ketema District.

Apart from the increases, an explanatory note released by the CSA indicates that there was decline in the prices of cereals, vegetables and spices during the month under review. The prices of non-food items such as clothing and footwear, and household goods and furnishings contributed to a rise in the headline rate.

Clothing and footwear saw their strongest rise this month, increasing to 3.2 percent. Construction materials, water and fuel and power grew by 12.7pc.

Overall, non‐food inflation increased by 8.1 percent in November 2016 as compared to November 2015.

Ashenafi Dagne, a father of one, argues last month’s cost of living is cheaper than the preceding year.

“I didn’t feel the brunt of inflation this year unlike the past few years,” said Ashenafi, a household head with a monthly salary of 4,000 Br.

Last week, the World Bank opined that the birr is overvalued by 84pc. The birr’s last devaluation was in 2010, when the country experienced a record-high inflation of 40pc.

Ethiopia has registered a 9.8 percent average growth over the past five years. Next year, the economy will grow by 7.5 percent, according to the International Monetary Fund projections.






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