Why can’t we clamp down on inflation?

It has been over six months since we were told that the rise in consumer items in the Ethiopian market would gradually subside and return to some sort of normalcy. The government has continuously maintained that it has introduced a series of measures to curb the rise of inflation. Among them include salary increments for civil servants, regulating and distributing select consumer items such as sugar, edible oil and cement, as well as facilitating the set up of consumer associations.

However, there are other viable alternatives to include within the government’s interventions. Among them is a need to incorporate more items in the basket of goods within the Consumer Price Index (CPI). The reason here is that price inflation has occurred across the board, and dwelling on select items does not address the big picture. This in turn limits the effectiveness of the interventions. It is noteworthy that inflation is not a result of supply and demand but rather of pricing, and thus focus should be made on import substitution and price regulation.
Import substitution is a measure that we have all been championing since the 1990s, and even in some cases earlier. The problem is that we have not yet been able to fully commit to this measure. Import substitution not only saves precious foreign reserves, but also develops technology know-how in our industries.

In regards to implementing price ceilings, Ethiopia is a nation that claims to live by the principles of a market economy. However, price regulations do exist in fuel and other commodities. Why not incorporate these same principles elsewhere for a determined amount of time - until prices stabilize - and avert even more public outcry? This might lead to a slow down in economic growth, but aren’t the benefits worth the sacrifice?
All the measures put in place by the government mean well, but the underling fact remains that inflation is spiraling with no indication of it ever slowing down. There is a genuine need to bring in much stronger measures. No doubt the price of oil and the devaluation of the Ethiopian birr against the dollar have had their share in the inflation. But it seems that little attention is being given towards the psychological damage caused by a rapidly rising cost of living. Once an inflationary psychology is entrenched, consumers and businesses hoard inventory goods and services until prices reach levels at which merchants make a killing through speculation.

Stories about wide-spread price hikes have been brewing since August, with the onset of millennium hype. Prices have continued to climb with little indication of stabilizing. I would rather avoid the debate that one of the reasons that prices continue to mount is that the producers within the country - i.e. farmers - are storing their produce until prices for their produce reach levels that are to their liking. The “battle between the urbanites and the rural community.” as some call it, is not that significant - we continue to see ample produce within the market, indicating that produce has steadily left farmers’ silos in rural Ethiopia for the urban markets.

Ironically, one key area that has yet to be addressed is the issue of housing. With the limited supply of housing for low and middle income households, the people continue to live under the whims of landlords. Price ceilings or standards for rent have yet to be seriously discussed - let alone implemented. The argument here is that had affordable housing been available, consumers could have at least overcome the onslaught of the rise in consumer prices through the savings that they had made from owning houses.

Generating alternative means of income and promoting savings are other avenues that require due attention. In matters where everyone stands to benefit, it always helps to look towards a multi-pronged solution rather than stick to one’s guns. •