Ethiopia cites difficulties in tackling inflation as it soars to 28.7%

by MMC
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Inflation in Ethiopia, reached 28.7%, with the National Bank of Ethiopia (NBE) recognizing that this is one of the country’s most challenging macroeconomic challenges in many years. Based on its monetary policy statementthe country, home to almost 120 million people, is struggling to cope with rising inflation, with average inflation of 16% per year recorded over the past ten years.

“Inflation results over the past two years have increased even beyond this average historical rate and have persisted much longer than initially expected,” read a statement from the NBE.

According to NBE data, Ethiopia has recorded consecutive months of inflation below 30%. In December 2023, the annual inflation rate increased to 28.7% compared to 28.3% in November 2023. Food prices, which represent more than half (53.5%) of the consumer price index (CPI), increased to 30.6% compared to the same period in 2022, and slightly higher than the 30% recorded in November 2023. This jump was linked to the rise of the nation internal conflictthe Tigray war.

The combination of malnutrition, disease and food insecurity has made the situation worse. About 4 million people have also been affected by the current drought. “Some supply-side and cost-related factors found to be statistically significant in their contribution to inflation include the internal conflict that has disrupted local food transportation/distribution networks and the sharp rise in global prices of major commodities,” a declared the NBE.

Other products other than food increased to 26.1% in December 2023 from 26.0% in the previous month, under the influence of a weaker currency, the Ethiopian birr. Nevertheless, the NBE wants to reduce inflation to less than 20% by June 2024 and to less than 10% by June 2025. To do this, it plans to manage the amount of loans and reduce donations of money directly to the government.

Performance of the Ethiopian birr

In December 2023, the birr lost value by 4.8%, ending the year at 56.1 birr per dollar, compared to 53.6 birr recorded in December 2022, per year. statement shared by Safaricom Ethiopia. The government made some changes in September 2022 to introduce more foreign currencies into the country. For example, the NBE arrested use of foreign currencies for purchases in the country. Ethiopians can only keep foreign currency for 30 days, instead of 90 days when returning to the country after traveling abroad. At the same time, the NBE facilitated the entry of foreign currencies into the country.

Ethiopians can bring up to $4,000 without declaring the cash at customs. However, the amount of money noncitizens can bring without alerting customs has more than tripled, from $3,000 to $10,000.

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