Ethiopia is grappling with a 28.7% inflation rate, which the National Bank of Ethiopia (NBE) identifies as a longstanding macroeconomic issue. With a 16% average annual inflation over the past decade, the country has faced challenges in curbing this rise. According to NBE, inflation rates over the past two years have exceeded the historical average.
In December 2023, annual inflation rose to 28.7% from 28.3% in November. Food prices, representing over half of the consumer price index, rose to 30.6%, largely due to the internal conflict, the Tigray war.
The country also faces malnutrition, disease, and food insecurity issues, exacerbated by an ongoing drought affecting around 4 million people. Other contributing factors include disrupted local food transport and a jump in key global commodity prices.
Inflation in non-food items rose to 26.1% in December 2023, driven by a weaker Ethiopian birr. However, the NBE aims to cut inflation to less than 20% by June 2024 and below 10% by June 2025 by regulating lending and minimizing direct government funding.
Additionally, changes were made in 2022 to enhance foreign currency inflow, including restricting foreign currency use for local purchases and easing regulations on bringing foreign currency into the country. In December 2023, the birr depreciated by 4.8%.
