Headline inflation increases despite price surge in food items

ETHIOPIA – The headline inflation, an indicator of the cost of living, that had stagnated at 13.6% for the past two months showed a slight downtick to 13.4% in January 2018, according to the Central Statistical Agency (CSA).

In the last two months of 2017, the headline inflation was 13.6%, but it went down in January mainly due to a drop in the non-food inflation rate by a percentage point to 8.4%.

The month-on-month general Consumer Price Index (CPI), which measures changes in the price level of a number of consumer goods and services, has shown an increase of 0.4% compared to the preceding month, reads the report from CSA.

Despite the drop in the headline inflation, the month-on-month inflation rose by 0.4pc in January, indicating that the prices of goods were higher in the past month than the preceding one.

Opposed to the target set in the second edition of the Growth & Transformation Plan (GTP II), the headline inflation has been in double digits since August 2017, which was then fuelled by the hike in cereal prices and later Khat.

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Despite the tight monetary policy adopted by the National Bank of Ethiopia (NBE), which imposed credit caps and raised the interest rate levied on deposits on commercial banks, a high rate was registered.

The regulatory body, the central bank, has also instructed all commercial banks to issue letters of credit (LC) equivalent to the amount stated in the invoices of any goods- as a move to narrow the exchange rate gap between the official and parallel market.

But for Alemayehu Geda (Prof.), a macroeconomist and lecturer at Addis Abeba University (AAU), the decline in the inflation rate last month is not justifiable.

“In the country that has a forex crunch coupled with devaluation, population growth and urban migration, inflation can’t go down,” he told Fortune.

“Everything in the market is showing a remarkable price increase.”

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The Prime Minister’s Office has also formed a new high-level committee to control inflation rate, which is composed of members from the NBE, National Planning Commission and Trade Practice & Consumers Protection Authority (TPCPA) conducting monthly assessments and reports to the PM office with recommendations.

The price escalation of food items that pushed the inflation rate is the new focus area for the government, according to Echisa Dame, director of Trade Information at TPCPA.

“We are working with city administrations and regional trade bureaus to kick-off assessments on those who are inflating food items,” Echisa told Fortune.

AddisFortune

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