Analysis: Citizens with fixed income carry the brunt of unabated inflation

By Getahun Tsegaye @GetahunTsegay12

Addis Abeba, January 3/2022– Inflation has a huge effect on the livelihood of many in the country but has profound effects on civil servants whose salaries remain unchanged. “Inflation hits harder on workers whose income is fixed, such as civil servants, pensioners, and low-income contract employees,” said Abis Getachew, an independent economist. 

Rabiya Yesuf, an employee of the Ministry of Agriculture, explained that the price of agricultural products such as teff, onions, potatoes, tomatoes has increased in November 2021 compared to the past couple of months. She said, “A kilo of Teff was 56 Ethiopian ETB in October then went up to 59 ETB in November.” According to her, a kilo of onion has increased by 15 ETB in one month. She expressed her concerns about the price hikes and how it is affecting her livelihood. 

The Central Statistics Agency (CSA) in its latest reports disclosed that the overall rate of inflation (12 months moving average inflation at Country Level) in Ethiopia increased by 25.5% by November 2021 compared to the one observed over the same period a year ago. According to the report, food inflation was the highest, registering a surge as high as 30.1 %, while non-food inflation registered at 19.4 % in November 2021 as compared to November 2020. The CSA reported that the 12 months moving average inflation rate suggests a longer-term high inflationary projection in the country.

The CSA reported that the year-on-year inflation rate in November 2021 has surged by 33 % as compared to the one observed in November 2020 while the food inflation has increased by 38.9 %. The agency also reported that the month-on-month inflation rate registered a decrease of 0.6% and the food inflation a decrease of 1.7% compared to October 2021.  The CSA also reported that in November, cereals, vegetables, and pulses registered a relative price drop while meat, dairy products. Whereas spices (mainly salt and Pepper), and edible oil prices registered a slower decline with coffee beans and non-alcoholic beverages maintaining an inflationary reaction in November.

“We’re not sure if we can keep paying such an amount of school fee nor do we have a plan to have another baby.”

Meron Anteneh, a civil servant in Addis Abeba

Sisay is a salesperson at a private company who complained about price hikes, describing it as “shocking”. She said while expressing amusement at the market movements compared to her salary, “A kilo of orange saw an increment of 100 percent. I don’t think I will afford to buy it anymore.” 

But others say the biggest challenge facing them is securing rent payment. Like Ayele who is a civil servant residing in Addis Abeba. He said, “Following the government’s declaration of banning rent increase, my landlord cannot increase the rent at least for the time being.  I however remain apprehensive that when the declaration is over, they will increase it,” he added, “My salary has almost been stagnant and hasn’t shown steady growth while the house rent was increasing alarmingly.”

Another civil servant whom Addis Standard spoke to was Tinsae who is currently living in a rented one-bedroom condominium at the Abado site. She said, “I have been paying 6,500 ETB monthly but my friends who were displaced from Wollo due to the ongoing conflict were asked to pay 7,500 ETB for a similar bedroom,” she added,” However because some IDPs are returning to their hometowns, rent is dropping to where it used to be a few months ago.”

Meron Anteneh, another civil servant, complained about the increase in private school fees in Addis Abeba. She told Addis Standard that her only son, who is currently in 1st grade, has been enrolled in the same school for the past three years. “The previous year I was paying 4,000 ETB every quarter but I am paying 6,100 ETB. That is an increase of 2,100 ETB making it an 8,400 ETB increment a year.” She added, “Taking into account the income my husband and I make, we’re not sure if we can keep paying such an amount of school fee nor do we have a plan to have another baby.”

When asked about expectations from actions taken by the government to regulate and address inflation, some expressed hope that the salary increment would address the matter. However, others complained about the supply chain, corporate greed, and irresponsibility of house owners and asked for actions to address the lack of social responsibility. 

“Because the wholesalers at Merkato increased the price, I don’t have any option other than to increase the retail prices too.

Abdi Naje, a retail store owner

Abdi Naje, a retail store owner, told Addis Standard that since the government announced punitive measures against individuals involved in creating artificial price hikes and commodity shortages, the market has been stable. According to Abdi, this trend isn’t sustainable. He said, “With the exception of some items, like edible oil, milk, and flour, the price of other edible and non-edible items started to go back where it used to be,” he added, ”Because the wholesalers at Merkato [The biggest marketplace in Africa] increased the price, I don’t have any option other than to increase the retail prices too.”

Another aspect of concern is the increase in the prices of fuel products. Ashenafi, a resident of Addis Abeba expressed, “I’m scared that the cost of public transportation and other goods will increase.”

It is worth mentioning that in December, federal authorities increased prices on various fuel products. According to the December adjustment, the price rose to 31.74 ETB from 25.86. Consequently, the Addis Abeba city administration Transport Bureau revised tariffs on public transport services. 

Measures taken by the government

Intending to help low-income residents of Addis Abeba, the city administration cabinet decided to grant loans up to 500 million ETB to offer subsidies to consumer cooperatives that will provide basic consumer goods and stabilize the market price of grain.

The Commercial Bank of Ethiopia (CBE), on its part, announced its plan to provide over 100 billion ETB in loans to the private sector, agricultural inputs, and public enterprises in the current budget year. Of this amount, 25 billion ETB is for the private sector, 30 billion ETB for agricultural inputs, and the rest for public enterprises to stimulate the economy; and resulting in job creation. 

Earlier in August last year, the Ethiopian Ministry of Trade and Industry (MTI) disclosed the government’s plan to address the rising cost of living, by reducing double digits of inflation to a single digit by subsidizing basic commodities. The statement read, “A task Force, from federal to woreda level, is taking action against illegal trade activities which are causing more problems for the society by increasing prices without any valid economic reason for industrial and agricultural consumption.”

The Ministry accused unnamed individuals of creating artificial shortages in basic goods and causing an increase in prices. It warned that actions will be taken against those involved in illegal activities disturbing the supply chain.  

What do economists say?

Abis Getachew is an independent economist and researcher who has conducted extensive studies about inflation in Ethiopia. When Addis Standard asked him how inflation has affected civil servants, who live on a fixed income, Abis stated that these sections of the society are highly vulnerable to the inevitable inflation rate in Ethiopia. “The surge of inflation is alarming while their income is fixed which makes life hard for them,” he explained.

Explaining the recent government’s interventions to set fixed prices on retailers and wholesalers, Abis underlined that such measurements might only play very subtle impacts on regulating the market for a certain period. The government should endeavor to work on grand economy projects that would help minimize or alleviate such an alarming inflation rate in the country, Abis said. 

Abis responded to the demands of civil servants’ salary increment queries saying, “Salary increment does not resolve the living standard of the civil servants or employees living on a fixed income. In the context of Ethiopia, it will instigate price rises on items which will create another destabilization.”  

“If the National Bank of the country is directly accountable to the House of Peoples’ Representatives instead of the Council of Ministers, it will be more independent and have the freedom to design well-established policies that can help fix the existing economic problems Ethiopia is facing.”

Abis Getachew, an independent economist

“It is not too late to fix the inflation spikes,” the economist said, adding, “the government and concerned bodies should work on housing, transportations, and corporations’ projects.” According to him, if these entities work on the availability of such projects at lower prices, consumers, including employees on a fixed income, would have opportunities to shop per their income.

He further advised the government to come up with a policy that lets the National Bank become independent. “If the National Bank of the country is directly accountable to the House of Peoples’ Representatives instead of the Council of Ministers, it will be more independent and have the freedom to design well-established policies that can help fix the existing economic problems Ethiopia is facing.”

Concerning the ongoing war in Tigray, Afar, and Amhara regions, Abis stated his speculation that the war might have resulted in shortages of supplies. “Due to the war, millions have been displaced from their homes and various industries were destroyed and burned down which have disrupted the normal living conditions of many.” He added, “Food items and other supplies have been transported from other parts of Ethiopia to the war fronts and that might have resulted in shortages and contributed to the inflation,” Abis stated. He expressed his hope that the inflation rate would go down after the conflict in the north comes to an end and called upon the government and concerned bodies to come up with interventions to regulate the inflation spikes in the country. AS

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