Ethiopian Annual Inflation Rate Increased to 34.7% in May on Food Prices

Ethiopia’s annual inflation rate climbed to 34.7 percent in May as food prices surged, the Central Statistical Agency said.

Inflation accelerated from 25.6 percent in the previous month, the Addis Ababa-based agency said in an e-mailed statement today. Food prices jumped 41 percent in the year, compared with a 32.2 percent increase in April, it said.

Price increases in Ethiopia, Africa’s second-most populous nation, are being driven by “excessive” growth in money supply, which expanded 35 percent at the end of March, the International Monetary Fund said on May 31. The Washington-based lender had previously projected an increase of 22 percent in money supply this fiscal year.

The government has cited high international commodity prices for the rise in inflation. Global food prices climbed in nine of the past 11 months, touching a record in February, amid tightening grain supplies and increased demand, according to the United Nations.

Oil prices have risen as a result of political instability in the Middle East and once they decline, Ethiopian prices will drop, Deputy Prime Minister Hailemariam Desalegn said on June 8.

The negative real interest rates that have resulted from rising inflation is discouraging a necessary boost to Ethiopia’s national savings rate, the country director of the World Bank in Ethiopia, Ken Ohashi, said on June 7.

Without a significant increase in savings from the current official rate of 5 percent of gross domestic product, Ethiopia will struggle to finance a five-year growth plan in a sustainable manner, Ohashi said.

The IMF forecasts Ethiopia’s growth rate may fall to 6 percent in the fiscal year to July 7, 2012, from 7.5 percent this year, partly because of inflation. The government’s forecast for the current fiscal year is 11.4 percent. The government will meet its growth targets, Hailemariam said.

To contact the reporter on this story: William Davison in Addis Ababa at wdavison3@bloomberg.net.

To contact the editor responsible for this story: Paul Richardson at pmrichardson@bloomberg.net.

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