Let’s discuss inflation

After a delay in publishing, official inflation data shows that December inflation climbed again to 35.1% (Nov 21 annualised rate was 33%). The statistics office blamed seasonal festivities for the recent spike in prices but the roots go deeper. Firstly, price increases in recent months have not been confined to Ethiopia, all economies around the globe are experiencing inflationary pressures. And then of course there is the war which has had an impact on the economy, including slowing down growth. The economy is not in a good place, Inflation has accelerated from 20% to 35%, the growth in the inflation rate was 75% in 2021.

The Birr has devalued by a more “usual” 20% during 2021. Normally we expect currency devaluation and inflation to track each other more closely, but 2021 due to the upheaval of war, a spanner was thrown in the works, resulting in runaway inflationary pressures. The black market forex rate is very different to official rate, where hard currency is traded at around 1/3 more than the official rate.

Not much news lately from the front, it would seem that there is a hiatus at present, with the TPLF back in Tigray and the Ethiopian Army happy to sit in Amhara region. Maybe this is an opportunity for looking at resolving the conflict in a more peaceful manner? Let’s hope so.

Meanwhile the harvest in winding down. The reduce production of Washed coffees in the South that translated to high differentials is also likely to have a negative effect on the quality of exported Sidamo 2 and Yirgacheffe 2, as more unscrupulous shippers mix in lower grades of washed coffees (Limu 2, Tepi 2, etc.) to bulk up their genuine Sidamo/Yirgacheffe beans. Buyers will need to be vigilant when cupping!

Birr 49.73 = USD 1

Have a good weekend.