Inflation Misses the Mark, Hurts Consumers

A recent report released by the Central Statistics Agency (CSA) shows that inflation has subsided to 13.7pc in April from its second annual high of 15.2pc. But the decrease is not shown on the prices of items on the ground level, where consumers are seeing their monthly expenses at an incredibly high level, YARED TSEGAYE, FORTUNE STAFF WRITER, reports.

Recently, the Central Statistics Agency (CSA) released a report showing that inflation last month, in April, had subsided to 13.7pc from its second annual high of 15.2pc.

For Kidist Ayalew, a mother of two, this was nothing less than ironic. In the past three months, she has only seen her daily budget for basic goods spiral out of control. She finds the Agency’s report that food inflation has declined from 20pc to 16.1pc even harder to swallow.

“I used to buy five pieces of bread for 10 Br. Now I can only afford four for the same price,” she told Fortune.

There is a justification on the government’s side for why there is a decline in inflation. The current trend that draws a picture of a marginally stabilising market scenario is a result of the lessening of unexpected shocks to the market in the past month, according to Yohannes Ayalew (PhD), vice governor and chief economist at the National Bank of Ethiopia (NBE).

Yohannes is pointing to the political calm that is currently being enjoyed in the country, whereas before production was being affected. While factory strikes had been recurrent, Addis Abeba was hit with a blockade of items such as fuel that led to price hikes in the capital. Ever since the coming into office of Prime Minister Abiy Ahmed (PhD), such market destabilising factors have visibly reduced.

Though, this has not been the only element affecting inflation. The rise had been acutely visible since the devaluation of the Birr by a basket of major currencies last October. The government had looked to improve Ethiopia’s export price competitiveness in the global market.

This has fueled a quick rise in the price of imported goods and has ever since made the likelihood of achieving the second edition of the Growth & Transformation Plan’s (GTP II) target of a single-digit annual inflationary rate unlikely for this fiscal year.

As it stands, the average inflationary rate for the past 10 months of the current fiscal year is 12.8pc. This means the remaining two months have to score an average inflationary rate of less than 7.2pc to hit the government’s target.

To arrest this inflation, the central bank has employed some monetary measures. Deposit interest rates had been bumped up to seven percent from five percent to encourage consumers to save, and a 16.5pc credit cap was imposed on commercial banks – which will not apply to manufacturers and exporters – to slow down the money supply in the market.

The Office of the Prime Minister has also formed a task force charged with monitoring and coming up with recommendations on how to reduce the price of living. The task force comprises of members from the NBE, the National Planning Commission, the Ethiopian Petroleum Supply Enterprise, Trade Competition & Consumer Protection Authority and the ministries of Finance & Economic Cooperation, Trade, and Industry.

“The single-digit inflationary rate, which we forecast at eight to nine percent will be realised if there are no more unexpected shocks in the market,” Yohannes told Fortune .

However, non-food inflation has spiked by just under a percentage point, reaching 10.8pc. This has been especially visible in the prices of construction materials which for the past two months have risen by an average rate of 24pc. Meat and dairy products have also shown a rise, which was expected, as the almost two months long fasting season had ended last month.

At the markets that Fortune visited, food items such as eggs had shown a minimum price hike of 33.3pc to reach five Birr or more.

Alemayehu Biyadgilgn, who sells chicken and eggs, says that the demand is still high.

“I am selling an egg up to five Br now. Those whom we buy chicken fodder from have been complaining about the scarcity of the product, which is their reason for increasing prices,” he said.

Cereals such as a quintal of wheat have also increased from what used to be 1,100 Br to 1,700 Br.

“There is a huge shortage of wheat in the market, and it may be severe in the coming months,” Sefi Ayenachew, cereals products’ retailer at what is known as Ehil Berenda said.

The escalation in the price of construction materials has also been keenly felt in the market, primarily by consumers such as BenMcon Construction. The company has been obliged to halt construction on the mixed-use building it was working on for the past three months.

Most cement factories have, over the past two months, added 50 Br to 70 Br to the price of their products. Cement producers such as Dangote – Africa’s largest cement producer – are selling a quintal of Ordinary Portland Cement (OPC) for 299 Br, and a quintal of Portland Pozzolana Cement (PPC) for 232 Br.

Taking these prices into consideration, a study conducted by Grade One Contractors’ Association shows that the costs of major construction inputs such as reinforcement bars and cement have increased by 51pc since the devaluation of the Birr last October.

Household Survey & Prices Statistics Directorate Director at the Agency, Alemayehu Teferi hopes this is not a trend that will continue too long, and that the past month’s decline offers a ray of hope.

Alemayehu acknowledges that inflation is being driven by a supply that has been unable to keep up with demand. But he points to the recently alleviating market volatility that is allowing for items such as khat to thrive.

A macroeconomist with vast experience though does not agree.

“Flashy pictures and pipe dreams are what we see in the report and hope of single digit inflation, which will not be realised,” he says.

He points to a foreign exchange shortage and an underperforming economy as the underlining factors feeding the inflationary pressure. Economists such as him forward that these factors have clustered to exasperate supply constraints and create the inability to meet the aggregate demand.

“The government must adjust its monetary and fiscal policies in a way that matches its capital expenditure and reassess the efficiency gain,” recommends the expert. “Increasing production and revising the monetary policy is a better way to respond.”

Otherwise, this unaddressed challenge of inflation will be hard on particular households.

“It is me and those making up the low-income group that will pay the cost,” Kidist told Fortune.


Published on May 12,2018 [ Vol 19 ,No 941]



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