Headline Infilation Dips, Amid Price Hike on Non-Food Components

Non-food inflation has a moderate spike with close to one percentage point

Headline Inflation which has been skyrocketing for the past year has shown a decline last month reaching 13.7pc, according to recently released consumer price index from Central Statistical Agency (CSA).

An indicator of the cost of living, headline inflation, has shown a 1.5 percentage points decline from the preceding month of March which saw a 15.2pc rate. The decline was encountered due to the fall of food inflation last month. Food inflation has declined to 16.1pc from 20pc while non-food inflation has a moderate spike with 0.8 percentage points reaching 10.8pc.

A rise in the prices of clothing and footwear, housing repair and maintenance such as corrugated iron sheets and cement, and charcoal pushed the non-food inflation, according to CSA. However, the prices of major cereals situation compared to last month, while prices of pulses, pepper, vegetables and fruits declined to some extent, the report indicates.

The prices of construction materials have spiked for the past two constructive months. The price of cement has increased by an average rate of 24pc, while steel and iron sheet prices have spiked with more than 50pc.

A study conducted by Grade One Contractors Association revealed that the prices of major construction input materials have increased by 51pc after the announcement of the devaluation.

The prices of meat, traditional butter, milk, cheese and eggs have shown an increase during the month as the 55-day long fasting season ended last month.

In the last month, South Sudan kept having the highest inflation rate across the continent with 161.2pc while Somalia had the lowest rate of -3.6pc. The neighbouring country, Kenya, managed its inflationary pressure with a single digit of 3.7pc a reduction from 4.8pc the previous month, according to tradingeconomics.com. The sites bases in New York and provides information for 196 countries on economic indicators, exchange rates and stock market indexes.

The inflation rate of Ethiopia has reached an all-time high of 64.2pc in July of 2008 and a record low of -4.1pc in September of 2009. Last year the government succeeded in keeping inflation rate to a single digit with less than eight percent on average.

Though the government targets to limit the headline inflation to single digits, the rate has been in the double digits since August 2017. It further showed a fast upsurge since October 2017, following the devaluation of the Birr by 15pc made to promote export.

Prior to the devaluation, there had been an upward drift in inflation which exceeded the authorities’ target of a single digit rate. In November 2017, the rate had gone up to 13.6pc partly reflecting inflation momentum and the impact of the devaluation, according to the IMF Article IV report.

As an immediate action to control this inflationary pressure, the National Bank of Ethiopia (NBE), the regulatory bank, has increased the minimum bank deposit interest rate to seven percent, up from five. It also put in place a credit cap on commercial banks, except for exporters.

To drag the rate down, the government has formed different task forces which will work on conducting studies and recommend way outs. The main taskforce is formed after the order of the Office of the Prime Minister while the sub is formed by city and regional trade Bureaus.

Nevertheless, the announced restrictive monetary and fiscal policy stances should bring inflation back to target in 2018/19, reads IMF’s report.

For Alemayehu Geda (Prof.), a macroeconomist and lecturer at Addis Abeba University (AAU), the decline does not have an economic justification stating that the devaluation caused price hikes on many items. In addition, it will also cause a budget deficit that may probably lead to the printing of money, according to him.

“Due to this, the real effect is a rising inflationary rate, not a decline,” he comments.


Published on May 05,2018 [ Vol 19 ,No 940]



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