Ethiopia returns to double digit inflation for first time five months

Ethiopia’s inflation rate has returned to double digits for the first time in five months, as rising fuel costs and supply shortages pushed transport and food prices higher, adding fresh pressure on households already struggling with the cost of living.

According to African Economy Inc⁠, annual consumer inflation rose to 11.7 percent in April from 9.4 percent in March, marking the sharpest monthly acceleration in recent months and signalling renewed strain on one of Africa’s fastest growing economies.

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The increase comes as fuel supply disruptions linked to tensions involving Iran and the temporary closure of the Strait of Hormuz sent global oil prices higher and disrupted fuel shipments to several countries, including Ethiopia.

Authorities in Addis Ababa raised petrol prices by about 35 percent over the past four weeks in response to the supply shock, triggering increases in transportation fares and food prices across the country.

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Food inflation, which carries the biggest weight in Ethiopia’s consumer basket, rose by 2.4 percent during the month, while prices in the gas and fuel category climbed by 3 percent, according to official data released by Ethiopia’s statistics agency.

Long queues have also returned to filling stations in parts of the country as motorists struggle with fuel shortages, prompting authorities to encourage greater use of public transport to ease pressure on supply.

“The latest rise in inflation reflects the vulnerability of Ethiopia’s economy to external energy shocks,” an economist at Addis Ababa based financial advisory firm Cepheus Growth Capital said. “Fuel affects almost every sector of the economy, from transport and logistics to food distribution, so the impact spreads quickly.”

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The renewed surge in prices threatens to slow Ethiopia’s recent progress in stabilising inflation after consumer price growth peaked at nearly 37 percent in 2022 during a period marked by conflict, currency pressure and global commodity shocks.

Despite the latest inflation spike, the National Bank of Ethiopia last month kept its benchmark interest rate unchanged at 15 percent, signalling policymakers’ attempt to balance inflation control with the need to support economic activity and investment.

Economic analysts say authorities now face a difficult policy choice as higher fuel and import costs continue to squeeze businesses and consumers, while the government seeks to sustain strong economic growth through reforms and infrastructure spending.

“The challenge for Ethiopia is maintaining growth without allowing inflation expectations to become entrenched again,” said an analyst at Nairobi based research firm Sterling Capital. “If fuel prices remain elevated globally, domestic inflationary pressure could persist for longer than policymakers expect.”

Africa’s second most populous nation is still projected to expand by more than 10 percent in the current fiscal year, supported by ongoing economic reforms, construction projects and investment in infrastructure.

However, rising transport and energy costs are beginning to erode household purchasing power and increase operating costs for businesses across the economy.