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Likely to be dented by the holiday season’s usually tough bargaining, the cost of living has slowed in March after a troubling upward spiral in the cost of food items which soared in February; breaking a five month trend of slowing prices.
The annual inflation rate slowed to an estimated 32.5 percent in March from 36.3 percent in February, the Central Statistical Agency (CSA) reported earlier this week in its monthly Consumer Price Index.
The drop is mainly due to slowing food prices that improved by more than six points. In March food inflation dropped to 40.9 percent from 47.4 percent a month earlier. Currently, food costs consume about 60 percent of an average family’s income.
Non food items also slowed to 20.4 percent during March, from 21.5 percent in February, the CSA reported.
The government remains unable to hold inflation to single digits for more than a year as promised by Prime Minister Meles Zenawi in July 2010 when he launched a five year economic plan Growth and Transformation Plan (GTP) with massive public spending. Senior officials including the National Bank governor and the Finance and Economic Development Minister however appeared content with a five month consistent trend of slowing prices before it was interrupted in February. March’s reroute to slowing prices should come as good news.
The country’s lenders have recently expressed concerns over the rampant inflation, even advising a cut in public expenditure aimed at realizing the GTP.
Some reports put public investment to exceed 33 billion dollars to finance the GTP’s leading projects, including railway networks and hydro power projects.
The Ethiopian government which faces a funding gap may need to curb spending to avoid borrowing that will further stoke inflation, Guang Zhe Chen, the World Bank country director, told journalists last week.
“There is a limited scale of how much the government can really invest on all these state enterprises unless you continue to borrow from the banking sector, which is going to again be fueling inflation,” the director said.
Mainly on account of inflation the International Monetary Fund (IMF) sees a 6 percent growth for Ethiopia in the current 2011/12 fiscal year, opposed to an 11.2 percent official estimate by Meles’ government.
“Ethiopia still faces significant challenges, in particular containing still-high inflation, raising savings and meeting enormous investment needs,” said Naoyuki Shinohara, the IMF Deputy Managing Director, in a statement after visiting Ethiopian in March.