Inflation: Headline inflation was 32.0% in February 2023, almost three times the Government of Ethiopia’s (GoE) annual average inflation target of 11.9%. The persistent inflationary pressure is driven by a range of factors including the mismatch between aggregate supply and demand, the unrest in several parts of the country, the high commodity prices in the global market, and the loose monetary and fiscal policies. After remaining at more than 30% for 19 consecutive months, food inflation slightly dipped to 29.6% in February 2023.

Exchange rates: The official exchange rate published by the National Bank of Ethiopia (NBE) indicates that the Ethiopian Birr exchanged at 53.62 Birr to the United States Dollar (USD) while the parallel rate offered around 95 Birr to the dollar in February 2023. Over the past 12 months, the official exchange rate of the Birr has lost its value by 6.5% against the USD while the parallel market jumped by 48.4%.

Fuel: As part of the gradual process of lifting the subsidy on the fuel price, the GoE has made its third-round price revision that comes to effect as of January 2023. In Addis Ababa, the prices of diesel and benzene has been revised upwards to 67.3 Birr/Litre and 61.29 Birr/Litre, an increase by 12% and 7%, respectively. With fuel and electricity accounting for 10% of the national Consumer Price Index (CPI), an increase in the fuel price can easily translate to a direct rise in inflation.

The teff and wheat conundrum: Although February and March are months in which the previous season’s staple food harvest comes on to the market and dampen food prices, the price of Teff sharply rose to a record level in March 2023. It was selling at 67% higher than the prices one year ago and 123% above the five-year average for the month. Out of a total of 15.3 million MT of wheat predicted to be available from domestic production in the agricultural year 2022/23, the GoE planned to export 3.2 million MT. The price cap introduced by the government, which later is reported to have been lifted, caused disruption in the availability and price of wheat.

Prices in conflict affected areas in Tigray: Since the signing of the peace agreement between the GoE and TPLF, prices of sorghum, maize, and teff decreased by 22%, 42%, and 12%, respectively. The wage to cereal terms of trade (ToT) exhibited improvement. However, the purchasing power of daily labourers in February 2023 remains far below where it was one year ago.

Terms of Trade (purchasing power) in Somali region: The failed five consecutives rainy seasons in Somali region resulted in poor livestock body condition that led to a decrease in their demand and price. On the other hand, the prices of imported foods sustained an aggressive increase due to the continued persistent inflationary pressures in the economy and continued depreciation of Birr against US dollar.

Market and food security outlook: There are no signs indicating that the underlying inflationary pressure on food prices will be abated soon.

Source: OCHA