Central Bank Governor
The Governor of Ethiopia’s central bank pulled no punches in acknowledging citizens are struggling with an unrelenting cost of living surge, conceding “too high” inflation in the East African nation has climbed to unjustifiable highs.
“We have a cost-of-living crisis,” Mamo Mihretu, governor of the National Bank of Ethiopia (NBE), said in his speech at the opening of the 20th Ethiopian Economics Association International Conference on Ethiopia’s economy, laying bare that prices have skyrocketed for essentials like fuel, food and fertilizer, placing a heavy burden on household budgets.
“Inflation has risen sharply here at home and elsewhere,” he stated bluntly, pointing to surging costs for energy, food and agricultural inputs.
Mamo said that the focus of monetary policy going forward will be on bringing inflation down.
For almost two years, inflation in Ethiopia has been over 30 percent before easing for a third consecutive month to 29.3 percent in June 2023, the lowest reading since July 2021, compared to 30.8 percent in May.
Before Mamo became governor in January 2023, inflation was one of the issues that his predecessor, Yinager Dessie (PhD), was questioned about by Parliament during several sessions.
Mamo admitted that inflation is causing major cost of living increases for citizens, leaving the country with less foreign exchange reserves to import crucial goods amid soaring global prices of fuel, food, and fertilizer.
He noted that prices of essentials like fuel and food have nearly doubled in some cases in recent years. This matches reality in the market, where the price of basic items like edible oil has more than doubled in the last two years, while even locally produced items like teff have surged by a similar amount.
“Inflation has risen sharply here at home and elsewhere partly fueled by surging energy, food, and fertilizer prices,” Mamo said, citing fuel costs as an example.
This year alone, Ethiopia will spend more than USD 4.2 billion on fuel imports—twice what it spent on fuel imports two years ago.
Bringing inflation down will be the central bank’s top priority because high inflation can become “ingrained” and cause economic distortions if not addressed quickly, according to Mamo.
“The direction and objective of monetary policy from here on will focus very specifically on bringing inflation down,” he said.
While acknowledging that Ethiopia faces other economic challenges from debt to difficulties in the business environment, Mamo stressed that restoring price stability by controlling inflation will be the immediate focus of the NBE.
“The insidious damage that a high inflation regime does…is well known,” the Governor said. “Our priority for this new fiscal year is thus to reverse this state of affairs.”
The Governor’s speech aligns with plans outlined in a Central Bank tweet from two months ago, on May 29, 2023.
The tweet outlined the NBE’s priorities for the coming year, including “addressing current bottlenecks in the banking sector… modernizing monetary policies, exchange rate policies, and financial supervisory systems.”
The bank aims to modernize itself “to create a modern Central Bank focused on price stability, financial stability, and external stability,” according to the tweet.
Governor Mamo focused on reining in surging prices in Ethiopia during his speech at the conference organized by the Economics Association, but omitted a key driver fueling inflation: the swift devaluation of the local currency.
Experts say the Birr’s rapid depreciation – losing up to 25 percent of its value against the dollar annually between 2018 and 2022 – has significantly contributed to the country’s double-digit inflation.
As the local currency weakens, it made imports more costly, fueling higher prices for consumers.