The unprecedented hike in the price of fuel the Ministry of Trade and Regional Integration introduced this Thursday has immediately led to the rise in inflation many feared it would engender. No sooner was the news announced than basic commodities got dearer by shocking levels. Coming less than a year after a 10 percent price adjustment in February 2021, the Ministry attributed the up to 25 percent surge in pump prices to the depletion of the fuel price stabilization fund as well as the need to rein in the booming cross-border contraband sales that had been driven by relatively lower petrol prices in Ethiopia. While some may be understanding of the reasons cited by the government to justify the increase, the majority of consumers have been dismayed given it has hit them in the pocket.
Needless to say, this is not the first time a gas price hike has triggered a steep inflationary rise in Ethiopia. The country has been witnessing non-stop soaring prices in both food and non-food items for over a decade now. The prices of teff, the staple food of the majority of Ethiopians, and other basic food items as well as house rent, mass transit services, utility bills, medical expenses, tuition fees, etc. have shot up exorbitantly during this period. Naturally, prices cannot be expected to remain constant year-to-year; they are bound to climb. However, the rate at which they have been rising is not only unfair, but also way beyond the increase in income levels. For instance, the price escalation in commodities that came on the heels of the fuel price increase in the middle of the week is utterly inexcusable. The level at which commodity prices skyrocketed is disproportionate with the upsurge in fuel price and sure to make the life of a population already at its tether end even more miserable.
The interminable rise in the inflation rate cannot be ascribed to a single factor. There are combinations of reasons at play that explain the phenomenon. One of the principal factors is the domination of the market by a select few players. It’s unrealistic to expect markets to behave normally while prices and the distribution of goods are fixed by these forces. A handful of rent-seekers in the value chain—importers/wholesalers, retailers and middlemen—have the clout to manipulate the market at will, distorting the laws of demand and supply that ought to have governed the market. Despite the government’s frequent promises that it would compel such cartels to comply with the law, they are still able to act with impunity. Unfortunately, some of the very measures the government took as part of its regulatory duties have had unintended consequences, exacerbating the problem further.
Aside from predatory behaviors that had the effect of creating market disequilibrium, other factors have further contributed to stoking inflationary pressure. These include, among others, the inability to overcome supply-side constraints of basic commodities; the high level of government borrowing from both domestic and external sources; the steady rise in the cost of imported goods due to the declining purchasing power of the Ethiopian currency; and the diversion of funds which could have been utilized for development or welfare purposes for the ongoing war effort in northern Ethiopia and the rehabilitation of the victims of humanitarian disasters. Although there are quick fixes for some of these challenges, most are set to remain a thorn in the public’s side for quite a while for they require structural solutions which take some time.
It’s not for lack of the desire or commitment on the part of the government that inflation continues to play havoc with peoples’ lives. Successive administrations have acknowledged on several occasions that tackling inflation was one of the priority areas of intervention on the economic front. Unfortunately, the bevy of measures they had taken with a view to bring it down to a single digit has failed to make headway. Part of the consideration behind the government’s decision to raise the price of fuel at this particular moment in time could be the imperative to replenish its exhausted coffers due to the staggering cost of the ongoing war instigated by the Tigray People’s Liberation Front (TPLF). This, however, cannot justify the imposition of price control practiced under a command economy. Nevertheless, the market cannot be left alone in the belief that it’s perfect at self-correction; it needs to be regulated in a way that encourages competition and protects the interest of consumers. The multi-faceted challenge that the biting inflation poses must be accorded a particular attention by all concerned. In this regard it’s of the essence that the council of economic advisers established by the government plays a leading role in producing insightful recommendations as well as to organize consultative forums to ensure the public’s participation in the search for solutions. No decision should be taken without going through this process first since any unilateral measure cannot be responsive to the needs of all stakeholders. Moreover, it’s paramount to be mindful of the political and security implications of the gas price hike when it comes to worsening inflation. Failure to deal with the ramifications of the increase is liable to cause the public to buckle under a weight it can no longer bear. The potential socio-economic and psychosocial consequences are too horrible to imagine. The sooner decisive action is taken the better!