Government admits measures to fight inflation were not as effective as planned

(By Kirubel Tadesse and Yohannes Anberbir- Capital)Though the latest inflation figures from the Central Statistical Agency (CSA) are encouraging, the Government admits that its efforts to reduce the rate of inflation has not been as effective as it hoped.
In the latest CSA report, both the general and food inflation rates showed a decline for the first time in March. Yet, non food inflation kept rising by a very small margin.
The Ministry of Finance and Economic Development (MoFED) explained the six bold measures announced earlier this year are paying off at last, even if some are yet to achieve their targets.
Stripping subsidies from fuel has eased Government expenditure, a move also supported with efforts to collect more tax revenues to curb domestic borrowing. Depreciation of the birr followed in an effort to boost currently shrinking exports.
The comprehensive macro economic and fiscal package for 2010-2012 MoFED had the cabinet approve a month ago revealed the export targets for this year are unattainable.
The first eight months’ performance has slashed the year’s overall export revenues target of 2,566 million dollars. The target, which would have surpassed last year’s revenue by nearly 27 per cent, is expected to improve next year and settle at around 21 per cent growth in the next three years.
The fiscal and monetary measures implemented to reduce domestic borrowing to zero and depreciate the birr were taken to fight inflation. However, the Government had insisted severe inflation in various food items is mainly due to inflationary expectations – people are rushing out to buy goods, therefore pushing up prices, because of their expectation that prices will only rise in the future.
Prime Minister Meles Zenawi explained earlier to parliament that farmers were not putting products on the market, as they were hoping to get a better price by holding on to their products a bit longer.
Government has been importing wheat for the last couple of months, spending millions of dollars aiming to avoid inflationary expectations as the price of food items soar.
Eight months later, the Government admits the strategy didn’t meet its original target to register price decreases, rather it only helped to stop further price hikes.
The rocketing price of food items was the main inflationary challenge for the country overall. Last year, a quintal of local wheat was sold for over 800 birr, which hindered production at flour factories. The Government pointed its finger at businesspeople, blaming them for hoarding the grain, aiming to create a shortage and take advantage of the subsequent price hike.
Prompted by this, the Government decided to flood the market so that it can crack the inflationary expectations and reduce the local wheat price.
Since late last year, the Government spent over 250 million dollars buying close to 800,000 tons of wheat, which it distributed at 350 birr per quintal. However, no changes in the local wheat market were observed.
As per the latest CSA report, the 59.2 per cent country level food inflation rate in March 2009 is 34.0 percentage points higher than that of the 25.2 per cent inflation rate in March 2008. (By Kirubel Tadesse and Yohannes Anberbir- Capital)