Inflation slows after government’s price cap

14 March 2011

Inflation slows to 16.5 percent in February from 17.7 percent in the previous month as the market reacts to price caps the government imposed across the country.

Both food and non-food inflation rates slightly reduced in February, according to the consumer price indices published by the Central Statistical Agency (CSA) this week.

The rate of rising food prices dropped to 12.8 percent from 13.6 percent in January. Food costs, which were deflating at the start of the current budget year in July, have been climbing ever since including a staggering 8.9 percent in December and 5.8 percent in November.

Globally food prices climbed to a record high recently as the cost of some items even exceeded levels reached in 2008, sparking riots in many parts of the globe, according to the latest reports of the United Nations Food and Agricultural Organization.

February was the first time in the budget year, which is well into the second half, when food prices trended downward. Non-food inflation also improved during the month, to 22 percent from 23.7 percent in January.

“The recent rise in price inflation is smaller as compared to the one observed in the past few years,” the CSA said in its monthly report.

The cost of non-food items showed a slower rate of soaring, a break from five straight months that saw the prices continuously picking up burdening consumers.

According to analysts, this is due to the September’s devaluation that soared prices of imported items.

After September’s unprecedented devaluation of the birr by 17 percent against the dollar, Prime Minister Meles Zenawi’s government remains incapable of keeping its target of holding inflation to six percent though February figures are good indications.

The government is vowing to maintain a six percent inflation rate despite increasing public expenditures as part of a five year economic plan envisaging a minimum of 11 percent GDP growth which the International Monetary Fund regards as an overambitious target.

The latest price fixation, aiming to bring down prices, was announced by the government right before the state increased public servant salaries by up to 35 percent.

 While the overall inflation didn’t slow significantly, unpleasant for consumers are some basic commodities, such as sugar which had their price fixed by the state but are missing from shops.

More worryingly, a fuel price globally shows an increment amidst unrest in most of the oil producing countries.

The government, on Thursday, increased retail prices and transportation costs which will also transfer into some of the prices of commodities,particularly ones that urban dwellers need daily.

While imported inflation is unavoidable, Prime Minister Meles before parliament promised to curb the soaring prices of locally produced items by lining out a better chain of supply to retailers from the producers.

If this fails due to lack of cooperation from business, Meles cautioned that the state will import basic commodities and distribute it itself to consumers regularly across the country.