Tuesday, January 17, 2023
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BusinessInflation emptying pockets, no end in sight

Inflation emptying pockets, no end in sight

The festivities look to be bright and colorful in Merkato, which is Ethiopia’s largest outdoor market. The storefronts and their interiors were decked out in Christmas decorations to the best of the shop owners’ abilities. Songs associated with the holiday season are playing everywhere, and it’s getting harder and harder to avoid going inside stores just to see where the music is coming from.

Despite the efforts of the merchants to attract customers’ attention, however, purchasers are difficult to find, and the retailers are left operating an empty shop. “I’ve been sitting around doing nothing since the morning, and it’s already 11 am,” Amanuel Mengistu, a shoe merchant at Amde Gebeya, a shopping center within Mercato dedicated to local shoe merchants, remarked, “I have not sold a single item.”

A graduate in economics, Amanuel made the transition to the business world three years ago. He thinks the slowdown in business is the result of the inflationary pressure in the country, which he thinks is eroding the pockets of everyone to the point where disposable income hits nil. “Look at your neighbours, look at yourself, we are genuinely becoming unable to afford our basic expense, let alone buying stuff that deemed luxury. This occurs when people have no money left over in their pockets after paying for their essential expenses,” as Amanuel observed.

In Ethiopia, inflation is eating everyone alive, and this is not an exaggeration. The economy is the third most inflationary in Africa, right behind Sudan and Zimbabwe. The annual inflation rate in Ethiopia increased for the second month in a row to 35.1 percent in November of 2022, which is a jump of four percentage points from the previous month of October.

The reading was the highest it has been since May and is a reflection of the severe shortages and rising prices of essential commodities, particularly food products. The main factors contributing to the country’s high inflation rate include the two year war in North Ethiopia, the worst and most protracted drought on record in the country’s southern region, and the rapid depreciation of the birr against major baskets of foreign currencies.

No one is immune to the inflationary wave, from farmers in the countryside to city dwellers. In particular, the situtation over the course of the previous four years shown that the pressure of inflation has rendered every market uncertain. Starting at the bottom of the production chain, farmers had to deal with the high cost of fertilizer, which had quadrupled over the previous two years. When it came time to buy inputs, factories were required to spend twice or even three times the amount that they usually do, and that was only if they were lucky enough to find the item they were looking for on the market.

As rising manufacturing costs are a problem for businesses, wages have remained unchanged for consumers. This may not be the case for the banking industry, which offers the highest salaries in the country; however, the situation is very different for other employers, such as the government, which is dealing with a budget crunch since its expenditures are skyrocketing as a result of the rising costs of items ranging from stationery to the cost of materials required for capital projects.

“Only my pay hasn’t gone up this year. Everything is rising, putting our future survival in jeopardy,” said Rahel Teshe, an employee of one of travel agencies in Addis Ababa.

It is even worse for public employees, who are not even permitted to form a union, which would have allowed them to voice their concerns at this time. After more than three years without a raise, government workers saw their purchasing power eroded by rampant inflation. Government assistance in the form of subsidized basic food supplies may have been useful for civil servants, but their living conditions are still a little different from those of other people who are struggling with the ever-increasing cost of living. One federal employee explained, “We pay rent and we buy much of our workers from the market as what we get from office is poor in terms of volume.”

Experts have talked so much on the subject, to the point where they grow weary when contacted by media. Inflation is a problem that’s dominated headlines for the previous four years, yet there’s still no solution in place. Wasihun Belay is an economist who has been making advice to the government and consumers through his Facebook page as well as through a variety of media venues, including broadcast and print media. He never gets tired of explaining what he considers to be the most effective method for bringing the inflationary pressure under control.

Wasihun has noticed that the approach that the vast majority of Ethiopian customers are employing to handle the strain of inflation is to cut back on spending. This helps to justify why some businesspeople, like Amanuel, are experiencing a slowdown in business even during peak periods. During periods of inflation, consumers have the option of either expanding their source of income or reducing their spending. Wasihun speculated that the latter group made up the vast majority of Ethiopian consumers.

“Everyone is scrambling to find a way to keep their heads above water amidst the brutal inflation,” the Economist remarked.

The responsibility of reducing inflationary pressure falls to the National Bank of Ethiopia (NBE). In point of fact, the public handed that particular task to the regulating body first on the list of mandates that they gave to the regulatory body. With inflationary pressures remaining in double digits since August 2017, and above 30 percent for more than a year, the country’s condition is unequivocal indication that the regulatory body has failed, as have its leaders.

Governor of the national bank Yinager Dessie admitted last month that inflationary pressures have grown out of hand. So is his deputy, Fikadu Digafe.

“Working under tight monetary and fiscal policy was impossible, given the war in North Ethiopia and supply side constraints caused by internal conflicts, as well as external factors,” said the vice governor and the chief economist at NBE, adding, “The government will not be able to bring the inflation to single digit at least for the coming two or three years. That is not possible, thus the current target is to keep things as they are.

Kiflu Godefe (Ph.D.), senior research director at Policy Study Institute, feels the solution lies in restoring consumer trust that inflation is under control.

“Wage adjustments should follow,” the researcher added.

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