Food inflation hits double digits amidst drought

ETHIOPIA – A week after the government has revealed that there is a drought surge once again in Ethiopia, the Central Statistical Agency (CSA) has reported that food inflation has hit a double digit to 12.6pc in May, its highest rate since January 2016.

The rate is in contrary with the target set by the government to maintain inflation in a single digit.

The report also comes in the same week when the National Bank of Ethiopia has indicated to parliament that the inflationary pressure is in a healthy state.

“We are keeping the inflationary pressure under control very well as per the target,” said Teklewold Atnafu, governor of the central bank, while presenting the nine-month report to the parliament’s Budget and Finance Committee.

The rise in food inflation pushed headline inflation, which indicates the prices of both non-food and food items, to soar beyond the minimum eight percent target of the government, reaching 8.6pc in April from 8.5pc in March.

This rate, however, has helped the government to uphold inflation in the single digits for 15 consecutive months.

The surge in prices of cereals contributed to the spike in food inflation last month. Major staple food items such as teff, maize, wheat, sorghum and barley are the major cereals that exhibited a price increase.

A big jump in the price of cereals pushes the inflation to the unprecedented rate, the report of CSA reads.

The report which includes the price observed during the last holiday does not go in line with the inflation rate seen around the Easter holiday, according to shoppers’ experiences. For most of the shoppers, the previous month was more stable than the trend seen during previous holiday seasons. The prices of vegetables and cereals were modest for most of the shoppers.

Nevertheless, the rate of inflation observed last month is similar to the projection given by some analysts.

A month ago, BMI, a Fitch group company and think tank, had projected that the inflation rate would keep soaring in the coming months of the year. The surge in food insecure people and erratic rainfall are the primary reasons for the hike in inflation.

A week ago, the National Disaster Risk Management Commission reported that the number of people who are in need of immediate assistance had reached 7.7 million. The number is 31pc higher registered six months ago.

Also, BMI pointed out that strong money supply growth will worsen the inflationary pressure in the remaining months of the year.

Broad money supply, the amount of money circulated in the economy, reached over 496.3 billion Br in the second quarter of 2015/16, showing a 25.1pc increase compared to the same quarter last year.

The money supply will cause a spike in the prices of food and fuel, the report added.

On the other hand, Tassew Woldehanna (Prof), a policy economist and a lecturer at Addis Abeba University, argues differently. He relates the increase in the inflation rate with a surge in commodity prices in the global market.

“We have observed the same trend in 2008 and 2011,” he said. “It is not surprising to witness a hike in the rate of inflation when the price of commodities spike globally.”

Earlier this year, after the price of oil picked up, the price of goods showed a considerable price upsurge. Cereals are the major items that exhibited a strong price hike, according to FAO.

May 10, 2017: Addis Fortune

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