The Ministry of Finance and Economic Development (MoFED) released a statement saying that there are indicators that the inflation rate of the country is about to take a downward turn.
A senior economist who requested anonymity told Capital that inflation can be a growth indicator provided that it is kept in check. According to the Central Statistics Agency (CSA), the Inflation rate for the month of November 2013 was 7.9pct. The economist believes that a decrease in inflation is only possible when there is a surplus of production.
Indeed the data from CSA seems to support the economist’s opinion. It states that the crops from this year’s harvest will be 254.2 million quintals, 22.9 million more than the previous year’s. This includes major components of Teff, Barley, Corn, Wheat, and Maize.
Among the major reasons cited for the rise of prices was importing food products especially staple diet supplies. The statement from MoFED claimed that the inflation for food stuffs had decreased from 30.5pct November in 2012 to 6.5pct in 2013. The overall rate has decreased from 25.8pct to 8.6pct. Prices for other materials have deflated from 20.3pct to 19.9pct.
Capital investigated at local bakeries. The price for wheat in September was 950Br a quintal, in October it rose to 1,150Br during the wheat shortage and now the price stands at 960Br.
The expert maintains that this stabilizing of prices won’t have an adverse effect on Ethiopian farmers.
“It is after all only a prediction,” they said. “You have the right to sell your products at the price where you can make a profit”.
The economist argued that opening the market to more private investment would further reduce inflation. They cited examples like the government getting involved in the wholesale market and influencing the wholesale market which decreases competition.
“Competition will allow fairness to reign in the Ethiopian market,” our expert concurs. “For too long the market has been controlled by an oligarchy of rich and powerful businesses. It is time for the rise of middle class traders,” they said.
One measure the government took is the distribution of imported staple food products like sugar, and cooking oil from abroad to sell to low income citizens at reasonable prices, according to MoFED’s report. It further stated that the government is doing the best it can to insure that these products don’t end up on the black market.
Overall, the expert agrees with the measures of MoFED but cautions that decreasing inflation has to be balanced with a trade-off.
“At the start of the GTP the government decided to tackle four macro-economic problems,” the economist said. “Namely, unemployment, balancing payments, increasing the country’s GDP and stabilizing market prices. But you have to realize that you can’t achieve all of them at the same time. In economics, a trade-off is necessary. Like we Ethiopians say, just because you have two legs doesn’t mean you can climb two trees,”
The expert continues by saying that every economic decision made by the government has to be study-based.
“It also has to put the realities of the time in mind,”. “That calls for a revolution in CSA’s data collection methods which are archaic and leave room for inaccuracies,” the economist concluded.