March 5, 2021

Amid the highly praised homegrown economic reform Inflation is becoming a very concerning issue in Ethiopia today


Addis Zeybe calls on the government to take necessary measures and properly control inflation.

Amid the highly praised homegrown economic reform Inflation is becoming a very concerning issue in Ethiopia today

With the eruption of Covid -19 in Wuhan, China in 2019 and eventually declared as a global pandemic by the World Health Organization the world economic order has dramatically changed as countries have begun to take various restrictive measures as a response to curb the transmission of the pandemic. Of the measures taken by the countries in responding to the pandemic is restricting flight, and some countries went to the extent of totally banning the flight. This in turn has hugely contributed to the significant decline in the movement of goods and services across the globe and thereby a high shortage of supply in imported goods. The extent to which the pandemic has impacted countries’ economies may not be the same for there are various factors that contribute to the disparity of the extent of the pandemic on the global economy. The COVID-19 pandemic being the most important factor for the global economic crises that are being experienced across the globe now, other important factors are worthy of discussing inflation. An issue like political instability is a very important factor, for instance.

This being the global trend, the issue of inflation is highly concerning in Ethiopia now. It is due to this reason that Addis Zeybe in its newsroom selected to write its weekly editorial on the issue of inflation in Ethiopia and the need to take proper measures against it by the government. While there are many parameters used to assess the existence or otherwise of inflation, the purchasing power of money and dramatic increase of the price of goods and services are the major most important factors used in economics. In this regard, if assessed against these standards there is indeed high inflation in Ethiopia that needs much attention from concerned bodies. It has become a common talk among people in Ethiopia today that the price of goods and services have highly increased and in some cases even doubled and the purchasing power of money has declined as the value of money against the US dollar highly decreased and consequently resulted in the increase of the price of imported goods. This devaluation of the Ethiopian currency against the US dollar added with the political mess that the country is facing now has hugely contributed to galloping inflation. The existence of high inflation in Ethiopia may not only be attributable to the pandemic and political instability but also the eruption of desert locust infestation, illegal trading activities, and corruption across sectors. The practices of hoarding basic goods by the traders and thereby creating shortages of supply in the market which ultimately increase the price of goods and services have also become prevalent. The other similar case is the undue increase of the price of the goods and services under the guise of the money devaluation and shortage of imported goods. Owing to these and other reasons inflation is at its peak now in the country and proper measures should promptly be taken by government authorities in a bid to stabilize the market.

In general, there are three important measures to be directed towards controlling inflation. The first one is monetary measures and it includes credit control and demonetization. The second measure being fiscal measures, consists of a reduction in unnecessary government expenditure, increasing taxes, increasing saving, and public debt. The last important measure that needs to be taken includes local production sufficiency, price control, developing rational wage policy, and rationing which aims at the distribution of scarce commodities to the public. Though it is necessary to take all these measures simultaneously owing to the hydra-headed monster nature of inflation which should be fought by using all the weapons at the command of the government. By other measures, it means to increase production and price control, among others. This is said because a handful of the monetary and fiscal measures against inflation has been taken by the government and Addis Zeybe appreciates the effort of the government in this regard though it is still demandable to properly follow the implementation of the laws and regulations revised to control inflation and ensure the existence of healthy economy.

This being the case, before recommending the measures that the government should take to control the inflation that is currently disrupting the country’s economy it is so imperative to assess whether the inflation is demand-side or supply-side.  Supply-side inflation is the situation where the price of goods and services highly increases owing to a shortage of goods and services in the market. On the other hand, demand-side inflation is the scenario where there is excess money in the market and demand for goods and services increases accordingly and thereby results in inflation. Seen from this vantage point,  experts argue that the inflation that occurred in Ethiopia now seems supply-side inflation and hence measures should also be taken from such directions. Therefore, taking this into consideration, among other things, the government should seriously work on increasing the production of basic goods like food, clothing, kerosene, Oil, sugar, vegetable oil, etc.  In addition to increasing the production of basic goods, the government should design a proper way that producers directly sell their products to consumers so that the products do not need to pass through stages of price increment in the hands of brokers.  Concerned authorities need to encourage the organization of producers in the form of producers' cooperative unions so that products are directly supplied to consumers which would increase supply and reduce the prices of goods and services in the market. The government should also make an effort to mitigate instabilities that discourage investments and negatively affect productivity. With regards to this, political instability has become one of the factors that have contributed to low productivity across sectors in addition to the eruption of desert locusts as that has resulted in the destruction of large products. For instance, the areas like the western part of Oromia and southern part of Oromia around Guji and Borana, the entire Tigray region, Benishangul Gumuz, and some areas in the Southern nation, nationalities, and peoples have been under serious security concerns and this affected the production in the areas. Hence, the government should make an effort to ease political tensions and riots in order to increase production and thereby reduce inflation. In addition to encouraging domestic production of goods and services, government intervention in the form of supplying basic goods may also be needed to stabilize the market. 

In addition to increasing domestic production and government intervention in the market in the form of supplying basic goods and services, Addis Zeybe believes that the government should also address the recurrent reduction of the value of the Ethiopian currency as it has immediately been resulting in galloping inflation. In theory, devaluation could cause inflation for three reasons;  cost-push inflation, demand-pull inflation, and fewer incentives in the long run to cut costs. The government has been repeatedly unofficially depreciating the value of the local currency in relation to the US dollar. Therefore, the government should focus on import substitution and encourage domestic production of goods to the extent possible and also need to properly regulate the illegal trade that arises in connection to the devaluation of money.   

In conclusion,  it is clear that inflation is one of the many concerns in Ethiopia today in addition to political instability that has resulted in the loss of hundreds of lives and destruction of private and public properties, and a global pandemic that took millions of lives globally and hundreds of lives in Ethiopia. Recently, it seems the issue of inflation has even grabbed the issue of people from every walk of life and become the common talk of the day. This shows that inflation is a very concerning issue that deserves due attention from every stakeholder in general and government in particular. Hence, considering the concerning nature of inflation in Ethiopia, Addis Zeybe in its editorial this week opted to call on the government to take necessary measures and properly control inflation. The government should also be fully aware of the fact that, if not properly controlled, inflation will definitely be a serious threat to the national economy and beyond.