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* Mushe Semu, president of Ethiopian Democratic Party (EDP) says lowering the inflation rate to the level that the government is saying, i.e to a single digit in the coming five or six months, is an illusion,…, in the coming five or six months nothing will be expected”.
Jan Mikkelsen, International Monetary Fund (IMF) Resident Representative to Ethiopia, [said] Inflation in Ethiopia has come down but it will not reach to a single digit by this budget year……It will be important to bring down the underlined inflation quickly, but it will likely take sometime before the volatility in food inflation can be reduced.
It is a clear fact that Ethiopia has been registering a steady economic growth for the last five years. Along with the economic growth the country has been facing double digit
increase in the price of goods and services. Thus inflation in Ethiopia is one of the most controversial issues in the economic and political discourses of the country.
The Ethiopian government has been working to reduce the inflation rate to a single digit in the coming six months. However, the government’s plan has come under criticism from different stakeholders. Many who comment on the issue, are forwarding different causes for the inflation and the appropriate policy measures that should be taken to curb the inflation.
Aster Zerihun, a woman whom this writer met, is engaged in selling vegetables on the streets and does not seem to agree with the idea that the cost of living will decrease in the near future. Aster says “It is a miracle for me if the high cost of living declines. on what ground can we conclude as such that with in solely six months the inflation could decrease to a single digit, as the situation existed since 2008?” she asks. “I am fade up with expenses as it is becoming horrible than ever, I now simply live for the sake of my children. I raise three children using the income I generate from selling vegetables at different mini-markets working for seven days a week but I could hardly feed them properly”, she said.
Mushe Semu, president of Ethiopian Democratic Party (EDP) says lowering the inflation rate to the level that the government is saying , i.e to a single digit in the coming five or six months, is an illusion, indeed. “As far as I am concerned, it is a mere propaganda. Frankly speaking, what does lowering the inflation to one digit mean? It should be specific. Even it demands a lot to bring the inflation down to 25-30 per cent”he said.
“It has been repeatedly said that the foreign economic impact on the domestic inflation rate is 10 per cent. At the same time government says it will lower the inflation rate by less than 10 per cent by November, he said, this means the inflation caused by domestic reasons will get zero, clearly a paradox and looks magic,” he added.
As to him there are mechanisms employed to replace or control the current inflation rate. Among the possible mechanisms, decreasing government expenditure is one way. However, the government is increasing its expenditures in such a hectic situation claiming to sustain the ever increasing developmental activities. “But the reality on the ground does not reflect this fact as all developmental projects are as crucial as to meeting societal needs. They are simply used for political lobby and propaganda,” Mushe said.
Another cause of the inflation,according to Mushe, is related with the supply side problem. This signifies that the market and the exchange system is highly dominated by few individuals. The very factors exacerbating the situation are, among others, corruption, wastage of materials and illegal money transfer. Having all these, in the coming five or six months nothing will be expected, Mushe stressed.
Jan Mikkelsen, International Monetary Fund (IMF) Resident Representative to Ethiopia, on his part says Inflation in Ethiopia has come down but it will not reach to a single digit by this budget year. According to Mikkelsen, a reasonable goal should be to close to a single digit in the course of the next budget year. Mikkelsen continued by noting that while underlying inflation has been hovering around 20 per cent in Ethiopia for the last five years, food inflation has been highly volatile. It will be important to bring down the underlined inflation quickly, but it will likely take sometime before the volatility in food inflation can be reduced, he added.
Mikkelsen said a combination of different factors including domestic and international supply shocks and the expansion of monitory supply by the government are among the causes of the inflation.
Mikkelsen further exclaimed that, the IMF has had continuous discussion with the authorities and it has deduced from the discussion that the government has attached high priority to address the problem of inflation. However, bringing the inflation rate significantly down requires the government to continue pursuing a tight fiscal and monitory policy, he suggested.
On the other hand, Haji Ibsa, Public Relation Directorate Director with the Ministry of Finance and Economic Development said; “Though lowering the inflation rate below 10 per cent requires a great deal of effort, it is believed that lowering the inflation as per the plan is attainable.”
According to Haji, the government has given special emphasis to drop off the inflation and is undertaking different fiscal and monitory policy measures via the Ministry of Finance and Economic Development and National Bank of Ethiopia.
Haji further elucidated that the Ethiopian Statistical Agency report indicates that the inflation rate was 46.5, 32, 36.3 and 32.5 per cent for the months of December, January, February and March 2012 respectively. As to him, since it is proved possible to decrease inflation rate by 14 per cent within two months, there would be a possibility to lower the inflation rate less than 10 per cent in the coming six months. Haji further illustrated that in order to decrease the impact of imported inflation the government is considering producing goods domestically. For example, to solve the shortage of sugar supply, edible oil and wheat, the government has set and is working to meet the short and long term solutions. In its short run approach, the government has planned to import the goods and distribute to the relatively vulnerable part of the society on subsidy and in the long term, undertaking different projects which help to satisfy the national demand.
Haji also said currently there is a store 60 thousand tones of wheat and is ready to be distributed to the society on subsidy with a view to stabilizing the market, and there is enough accumulation of sugar and edible oil. According to Haji, there are some problems observed in the course of distribution and the ministry with other stakeholders is working towards solving them. With all the combined effects of the currently effort u
nderway, The inflation rate, as per the plan, will be lowered to 10 per cent within the coming seven months, he underscored.
As the debate on the causes and ways of lowering the inflation in the country continues, the challenges faced by the government in the effort to curb it down seem to get fierce. However, the government is still optimistic that the rate of inflation could get below a single digit in the coming six months. The prime minister has recently said, in his deliberation to the parliament , that the inflation in the country is expected to get less than 10 per cent by November. He also has noted that the central bank has stopped lending to the government to help curb inflation.
According the Central Statistical Authority data the inflation rate in the country fell to 29.8 percent in April from 32.5 in March, showing a decrease for the second straight month . The inflation rate month on month also decreased to 2.1 per cent in April from 4.6 per cent in march, according to the CSA. However, consumer price month on month rose by 4.6 per cent in march from 2.7 per cent the previous month according to the report from the agency.
* Originally published on Ethiopian Herald, on June 12, 2012, titled “Perspectives in the fight against inflation”, authored by Jibat Tamirat.
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