News / Africa

Ethiopia’s Inflation Rate Hits Nearly 15 Percent in December

Ethiopia's annual inflation rate soared to 14.5 percente in December, partially due to steep increases in food prices following a currency devaluation.  The government is hoping newly imposed price controls will ease consumer pressure.

Ethiopia's Central Statistical Agency Friday said inflation had jumped from 10.2 percent in November to 14.5 percent last month. A statement said non-food items had gone up nearly 23 percent while food prices increased by almost 9 percent.

The government devalued the local currency, the birr, by 17 percent against the dollar in September, significantly raising the price of imported goods. Ethiopia already had a significant trade imbalance, with $1.2 billion worth of exports against nearly $7 billion in imports in the most recent year.

Last week, the government announced price controls on more than a dozen essential consumer goods as costs on food skyrocketed.

The caps on prices of such items as bread, meat, sugar, beverages and edible oils have proved to be popular with consumers in a country where per capita income is less than $400 a year.  But they have sparked howls of protest from shopkeepers, who have seen their profit margins cut sharply.

Some business operators have complained they are being forced to sell products at less than what they paid for them.

News agencies this week reported the government has closed down more than 100 retailers and suppliers who raised prices of price-controlled goods. The reports say retailers could face heavy fines and imprisonment for repeated violations.

Economists and opposition politicians say price controls distort markets and have been repeatedly shown to be counterproductive wherever they have been tried. Retired Ethiopian lawmaker and former World Bank director Bulcha Demeksa says it is a mistake to blame the business community for the government's mistakes.

"I'm not so angry with the retailers, sellers," said Bulcha.  "I'm angry with the government, because the government counts on its capability to control price. Prices cannot be controlled. It has been tried everywhere in the world and it has failed. Unless you make it a totally totalitarian society it is impossible to control prices."

Consumers, however, are widely supportive of the price caps. Shopper Shenkut Teshome says average Ethiopians have seen their purchasing power shrink to the point where many people were having to cut back on food.

"It is very important that the government should do the price control. Otherwise, with the free economy everybody is raising his price, and nobody can buy with his money, and at the end there is nothing to buy, and that makes a big difference," said Shenkut.  "The economy of the country stops growing, and people has not much money so they can afford anything, and if you don't have any price control, at the end of the day the people will starve."

A trade ministry official this week told of plans to expand the price controls to other consumer goods. He noted that the government's recent five-year economic plan has set a target of holding the inflation rate down to six percent a year.

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