Inflation is not alien to Ethiopia’s economy. It has been a major threat to the macro-economy of the country, whose GDP is over USD 100 billion, and a source of worry for policymakers, officials and consumers, who pay the ultimate price, whenever there is a sudden increase in the cost of living. Ethiopia’s Prime Minister, Abiy Ahmed (PhD) is among African leaders whose administration is under stress due to mounting living cost.
Abiy, appearing at the Ethiopian Parliament, where he showed-up for the first time since his return to Office from the battlefield, told Parliamentarians that the inflationary pressure witnessed in the global market led to a surge in living costs and is becoming out of his administrations control.
A case in point, according to him, is the soar in the international price of fertilizers, which doubled the import bill of the country for the item to USD 1.2 billion. Fuel also saw a 100 percent surge since last year, whereas the cost of wheat, sugar and edible oil more than doubled in the international market. Add the surge in logistics cost, which has quadrupled since 2020, means more challenge for an already troubled economies like Ethiopia.
“We are in the middle of a global inflation,” Abiy said.
So are his counterparts running a poor economy, facing their biggest imported inflation in over a decade and in some cases, the worst since the global financial crisis that has lasted in 2009. The International Monetary Fund is among the institutions that observed the impacts of an increase in price of commodities on countries identified as poor.
In its latest report, the Bretton Woods Institution said Emerging Markets and Developing Economies (EMDEs) have been affected by a wave of inflationary pressure, with 78 out of 109 EMDEs also confronting annual inflation rates of above five percent. The Fund also adjusted its projection for 2022, warning it expects the inflationary pressure to persist this year.
The IMF projects inflation to average 3.9 percent in advanced economies and six percent in EMDEs in 2022. Food prices are skyrocketing too. In January, the cost of major food items in the global market hit a 10 year high, reaching to a level near the heights of the global food price crisis of 2007-08 and 2010-11.
The World Bank also shares the concerns of the Fund. In its latest report on the commodity market, the Bank projected that energy prices will remain at a high level in 2022. It also warned of an economic bite for developing countries like Ethiopia, whose energy demand is largely satisfied by imports.
“The surge in energy prices poses significant near-term risks to global inflation and if sustained, could also weigh on growth in energy-importing countries,” said Ayhan Kose, Chief Economist and Director of the World Bank’s Prospects Group, while announcing the latest commodity market outlook of the institution.
Evident after the coronavirus pandemic came into the picture, the inflationary pressure is an outcome of a production slump and logistics crisis caused by the virus. The impact was severe on the shipping sector, portrayed by a shortage of containers and port congestions, causing a further increase in price of major items.
There is also a fear that the global inflationary pressure would lead to another global food crisis, while worsening hunger among the poor, and possibly, causing social unrest around the world.
Rob Vos, Director of IFPRI’s Markets, Trade, and Institutions Division (MTID), conducted a study on rising prices of food across the world along with three of his colleagues. He concluded “Rising food prices have a greater impact on low-income households, which spend a large share of their income on food.”
“The surge in consumer food prices in many low-income countries has driven households, especially poorer ones to shift to cheaper, more calorie-rich staple foods at the expense of costlier nutrient-dense foods like fruits, vegetables and animal-source foods,” said the researcher, adding, the rise in prices of more nutrient-rich foods, which has been far steeper than that of cereals, likely exacerbated this shift.
Even after the test posed by the pandemic and a supply chain crisis, which has undermined the efforts done to reduce poverty and avert food insecurity in the last decade; the global economy is poised to face yet another crisis caused by the Ukraine-Russia conflict in Eastern Europe.
Russia is the world’s largest supplier of wheat and along with Ukraine, its share to the total global exports is over 25 percent. The figure is staggeringly high in some countries. The two warring countries make up more than 70 percent of Egypt and Turkey’s total wheat imports.
Ukraine also exports more than 40 percent of its wheat and corn exports to the Middle East or Africa, which is already facing mounting inflationary pressures due to food shortages and price increases as a result.
While this is feared to have a significant impact on the food market of import-dependent countries like Ethiopia, the rising trend of oil price, witnessed after the conflict between Russia and Ukraine broke out, also sent shockwaves to poorer economies, once again reminding policymakers that the war with inflation is far from over.
It becomes a double whammy of potentially higher food prices globally and higher energy prices pushing up inflation. And when central banks respond by hiking interest rates, it becomes a triple whammy, according to Charlie Robertson, global chief economist at Renaissance Capital.
