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Inflation: the vice eating away social virtues

It is one of the busiest working days of the week in the Bole area where hungry customers swarm a popular butcher shop to have lunch. Teenagers sniffing glue, for a quick high, are waiting for their share of the waste food to arrive. If lucky, they will get a well-packed plastic bag filled with leftovers.

A bit further down the newly built national stadium close to the Hayahulet (22) area, part of the town that never sleeps, one can see piles of beer crates being emptied by destitute youth. Sometimes, fights break-out as one tries to snatch and drink from half emptied bottles the bar has left on its doorsteps awaiting delivery trucks to take it. Similarly, the young and old can be seen bent over a waste bin searching for leftovers.

In sharp contrast, life on the other side could not have been any different compared to large swaths of the population. New brand automobiles or luxurious vehicles can be seen cruising the streets, leaving in awe not only poor bystanders but the well-off as well.

They say inflation is one of the contributing factors for the fast growing gap in the living standards between the poor and the rich. Most of the time, the rich get richer and the poor get poorer. Inflation aggravates the cost of living as rapid urbanization takes place, says Wasihun Belay, an independent economic consultant and blogger.

The growing population, with its ever-increasing demand for essentials, creates supply side challenges. When production and demand of necessities do not match, then all the evils emerge, Wasihun explained. One evil is inflation.

The expert highlighted the contributions of inflation to the erosion of social norms, values and the creation of moral hazards. According to Wasihun, when people find it increasingly hard to satisfy their needs, they always tend to spend and consume less. When those who cannot afford suppress their needs, others with big wallets do not mind price hikes.

According to Wasihun, the crime rate is increasing because people need some sort of income to live by. Corruption is one of the consequences of surging prices of goods and services that renders people’s income effectively lower as it only purchases fewer goods and services under the new price. This is what the term inflation refers to. Inflation is described as a general movement of prices of goods and services measured in one year cycle. However, there is a desirable level of inflation necessary to nurture economic activities, which Wasihun calls “desirable pains”. Commonly, this advisable rate of inflation does not necessarily go above five percent. At least for the past 20 years, states Wasihun, it was not possible for Ethiopia to maintain a desirable level of inflation. In recent memory, the worst inflationary situation was recorded during the 2008/09 global financial crisis. Back then, Ethiopia was grappling to address the inflation, which reached a record 68 percent.

This mostly relates to the troubling public investments made by the government. The government was and still is the biggest spender. Government spending on public goods was one of the factors that fueled inflation, explains the expert. As people find it increasingly difficult to cover their expenses using their regular income because of the price hikes, they tend to look for irregular means of income to augment them. That means they might resort to asking bribe from the people they serve or engaging themselves in extortion. The whole situation leads to the spread of corruption in society.

Thomas V. Mirus, a regular writer for the Catholic Church website, writes inflation not only subsidizes the augmented control of “governments, at the expense of local governments and intermediary institutions”. The writer states, inflation “enables governments to wage more and longer wars without having to ask citizens to pay more taxes, and enables spending on other things citizens would not be in favor of. Inflation brings about moral hazards, causing recurring economic crises. Businesses borrow more because of the illusion of cheap credit, making business more dependent on banks and further concentrating economic power.”

Both Wasihun and Mirus agree that social norms and values are eroded as inflation continues increasing. While illustrating how inflation has contributed to the vanishing of certain customs, Wasihun said, “our recent history has it that buying a certain amount, for instance of bananas or chickpeas, would be commonly followed by the appreciative gesture of adding a few extra grams of the product by the seller; it is popularly called ‘mirikat’ which translates to ‘blessings’ in English. With the price of goods and services shooting up sharply, you are most likely not going to get that sort of gesture these days.

Wasihun also noted that sellers might not care to live by certain socially accepted norms and customs anymore. Like in many societies, it is common for many Ethiopian working people to contribute or share the expense when colleagues get married, give birth or lose loved ones. Despite bridal and baby showers becoming an increasing trend among the rich in Ethiopia, Wasihun noticed, ordinary people have gradually avoided the ordeal as they feel the price hikes.

Inflation also forces individuals to borrow when they do not have the income. Mirus argues people will not limit themselves to live “within their means; the decrease in purchasing power of money discourages saving and makes more and more people dependent on investing in fancy financial markets for their future security, since it will no longer benefit anyone to simply hoard cash for the future. The financial strategies of more and more people would be based on debt.”

Soaring debts mismatched with financial self-reliance tend to deteriorate self-sufficiency in all other spheres of one’s life. The debt-ridden individual or country eventually adopts the habit of turning to others for help, Mirus suggests. 

With the cost of living soaring by the day, individuals find it nearly impossible to maintain their behavior. The revamped quest for money under such conditions renders social values and virtues less important as people focus mainly on making ends meet, caring less about the way money is made. Considering the outcry by morale leaders of society about our social standards fading throughout the past decades, it is important to notice that inflation and the plummeting purchasing power of the birr have gone more chronic over those years as well.   

Getachew Asfaw, an economic planning expert and a contributor to many local newspapers, wrote in one of his books that the major source of inflation is money printing which comes as a result of budget deficit. “Too much money chasing too few goods” is the classical expression of inflation which translates to people with purchasing power without ample availability of goods and services around, Getachew noted. The other source of inflation in Ethiopia, according to Getachew, is cost of production.

Growing costs, lack of ample production and forex shortage have aggravated the inflationary situation, urging the government to print and circulate more money in the economy, Wasihun wrote. For years, the Ethiopian government printed five percent of GDP going well beyond the advisable rate of two percent, argues Washin, analyzing that the situation fueled in inflation as excess money supply remained in the economy.

In addition to the stated causes of inflation, political instability and conflicts have aggravated inflation in Ethiopia. Road blockades and the subsequent supply shortages shoot prices up, Wasihun noted.

Timothy B. Lee, former blogger for Forbes and a regular tech writer, once wrote that a high level of inflation has a devastating economic consequence. However, the writer argues, so long as inflation is kept at a moderate, largely single-digit levels, moralizing about inflation simply does not make sense. Nevertheless, that is not an easy task. Arresting inflation in single digits will not be that easy and the target is unlikely to be achieved in a one-year target.

For the past two years, the inflation rate was on the margins of 20 percent and in the past four years, it has hovered around 15 percent. Considering recent projections by the International Monetary Fund (IMF), Ethiopia is expected to sustain a double-digit inflation rate for the coming two to three years. Nonetheless, the macroeconomic team which Prime Minister Abiy Ahmed (PhD) chairs is seeking not only to bring down inflation to a single digit level, it also seeks to adjust macroeconomic imbalances.  

Large-scale irrigated and mechanized farming initiatives undertaken by the government in the vast expanses of lowland Ethiopia is one of the right moves, Wasihun pointed out. He commended that the approach could contribute to easing food price hikes. This will help ease the pressure on the 60 percent smallholder farmers who depend on less than one-hectare of land to supply their produces to the growing population.

If the plans and targets of the government are implemented, the harvest can play the role of a double edged sword in reducing imported foods (substantially saving billions of dollars) and alleviating to some degree the existing forex shortage in the country.

Sources told The Reporter that failure to curb the double-digit inflation, which was one of the IMF’s conditions to release USD 2.9 billion during the three years of Ethiopia’s Home Grown Economic Reform Program, was one of the reasons behind the Fund’s refusal to release funds. The sources have indicated that USD 350 million was expected to reach the coffers of the government last August. So far, USD 412 million of the USD 2.9 billion has been released to aid the government’s fight against COVID-19.