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Ethiopia has recorded an impressive drop in its inflation rate, from 19 percent in September 2012 to 15.8 percent in October 2012 after Prime Minister Hailemariam Desalegn promised to slice inflation to a single digit.
However, I still keep wondering; where does my salary go every month? It seems to me that, as impressive as the statistics are in terms of the reduction in the rate of inflation, in actual fact what we see on the ground and the numbers don’t tally. Some pundits state that the effects of reduction are observed in the long term rather than in the short term. By nature, I am not a big spender. Every month, after I receive my salary, I put it aside and try to slowly use it to accommodate my basic needs. Normally, I don’t really have a lot of needs and I am good to go as long as I don’t go hungry, have shoes on my feet and a taxi fare to go where I need to go. Recently though, my salary seems to barely cover these needs, if at all. It all has become just about too much to handle. From the list of needs I had mentioned above, which one is really the least essential, should I stop buying footwear and walk barefoot in the hopes of making ends meet or should I further restrict my diet, which is meager at best? Is this the kind of decision I should be struggling with every month of every year? I used to laugh out loud when my grandfather got upset and complained volubly about everything becoming expensive only because he was not able to buy sheep for Christmas. Now, let’s just say I don’t find anything a laughing matter anymore. I am not, in any way, suggesting that I want to buy a sheep for a little over a hundred birr; I’m just saying I want to be able to feed myself and be able to go to work wearing shoes. But it seems as though we live in a country that tells us this is asking too much. Since 2008 the Ethiopian Government has been promising to contain inflation at a single digit. Inflation has been skyrocketing since the beginning of 2011. Last year in October speaking at a parliament meeting, Prime Minister Hailemariam accredited the inflation situation of the country to international commodity price hike, increased foreign reserve, monopolistic trade structure and the wide gap between demand and supply of agricultural and manufactured goods. Importing major food items to narrow down the gap between demand and supply of major foods and increasing agricultural productivity as a mechanism to control inflation at a single digit is what the Prime Minister recommended to be done. It may not bear fruit if the Ethiopian citizens do not “have confidence in the stability of the value of money, and . . . if inflationary financing is not accompanied by governmental policies of holding down the wage and interest costs of business enterprises,” according to experts. Back in 2010 following a rise in the Consumer Price Index, the Ethiopian government not only scrapped taxes on flour and grains but also started selling edible food items at subsidized prices in order to repress inflation. The government back then claimed “greedy” businesses and speculators are the cause of the inflation. Inflation is the direct consequence of government policies. Spending more than it takes in, governments often resort to policies of inflating the currency. Inflation is a different or an unconventional way of taxation. An understanding of the real cause of inflation is crucial in fixing it once it reappears. A lot of economists and analysts misdiagnose inflation. The typical definition of inflation today adopted by economists is that inflation is an increase in prices. This definition only shows the symptoms of inflation which is the increase in price but it doesn’t necessarily look at the root cause of it. Why do prices keep rising? I kept asking. There is no one cause for it, there could be a lot of different root causes for rising of prices. One possible root is said to be printing more money and excess loans than can be produced or gained from productive resources or through savings, the government has interjected an artificial source of demand in the economy. Since the additional money did not result from producing additional goods or increased savings, its source is artificial. The additional money created through authorized means creates additional demand in the economy beyond its ability to produce, so the prices of goods or services rise as a result. Now I am not an economist and there are many things I don’t completely understand when it comes to it, but I know the worst kind of inflation is driven by rising prices for the types of goods that people need to buy all the time, isn’t that what we are still having in Ethiopia? Usually higher prices pinch working- and middle-class people particularly hard and have little or no redeeming benefit for the economy. The World Bank stated that it was possible for Ethiopia to bring down inflation to a single digit number by 2013. It is now 2013. Hopefully by the end of the current year inflation will indeed go down to a single digit as it has been said it would, and we would actually be able to see some kind of difference in the price of goods as well.