Food Inflation In Ethiopia

According to the National Bank of Ethiopia (NBE), inflation is highly correlated with the price of food. Referring to Table 2, which shows the share of food in the consumer goods basket, the national level is 58%, while the expenditure on food by the urban residents is 55%. On top of that, 85% of the population being a rural residents and deriving their livelihood from agriculture, the overwhelming source of food is domestic production. Imported food is insignificant, amounting to less than 5% of total imports and 1.3% of private consumption expenditure during the last decade (NBE, 1999/00). Inflation has been contained primarily due to a combination of moderate international food prices and reduced central bank financing (a reduction in →M) of the budget deficit as well as other policy measures, such as stringent legal limits on borrowing from central bank. In general, the government’s use of domestic sources of finance, mainly money creation, is significant. Provided most of the household income goes to food expenditure and money creation results an increase in money stock in the economy, the demand for food is …show more content…
According to the most noted Ethiopian macro-economist and the current department head at Addis Ababa University, economic performance in Ethiopia is highly correlated with the political process (Geda, 1998). Ethiopia has passed decades of economic stagnation and fluctuation as a result of continuing change in policies and political environment. The political system doesn’t seem to follow the traditional trend of socio-political development. This is observed when the military revolution in 1974 overthrew the Imperial regime, where the country moved from a relatively free market system to centrally planned one. It is only after the ruling party EPRDF defeated the revolutionaries that the free market system is somewhat