Ethiopia Faces Persistent Double-Digit Inflation Through 2030, Study Warns

A recent macroeconomic outlook published by the Ethiopian Economics Association (EEA) warns that Ethiopia could face persistent double-digit inflation through 2030. The report's baseline model projects inflation at 16.54 per cent in 2026, declining gradually to 14.91 per cent in 2030. This projection assumes annual broad money supply growth of approximately 25 per cent and a 5 per cent depreciation in the nominal effective exchange rate.

The report, prepared by researchers Mezid N. Keraga and Jeleta G. Kebede, examines economic developments between 1993 and 2025. It argues that lasting price stability requires action on several fronts, including controlling monetary expansion, reducing reliance on central bank financing of government deficits, improving food production and distribution, and protecting vulnerable households from adjustment costs.

The study identifies agricultural supply conditions as a major influence on Ethiopia's inflation, noting that food price movements have historically played a central role in shaping the overall consumer price index. The analysis finds that headline and food inflation rose together between 2018 and 2022 before moderating through 2025. Non-food inflation followed a different path, peaking later and showing renewed upward pressure towards 2025.

The authors associate the trend in non-food inflation with the delayed transmission of higher imported input costs following foreign exchange reforms. However, their statistical model does not find a significant relationship between movements in the nominal effective exchange rate and overall inflation across the full estimation period. This highlights the difference between the report's interpretation of recent price movements and the relationships established by its model.

The report recommends directing public investment towards agricultural value chains to reduce supply disruptions and improve the movement of food from producers to consumers. It also identifies government financing as a source of inflationary pressure, arguing that public-sector credit expanded sharply after 2020 while private-sector borrowing faced restrictions.

To address this imbalance, the report recommends ending reliance on direct central bank advances to finance public deficits and shifting government borrowing towards competitive domestic debt markets. The authors also favour replacing rigid administrative credit ceilings with interest-rate-based instruments, arguing that productive private businesses need access to finance.

The projections require caution, as the report's model estimated inflation at 28.47 per cent for 2025, compared with an official figure of 13.9 per cent cited in the study—a substantial discrepancy. The report's central policy message is that reducing inflation sustainably requires coordination between monetary management, government financing and measures to expand supply.

Key points

• The Ethiopian Economics Association warns that double-digit inflation may persist through 2030 without improvements in monetary and fiscal policies.
• Agricultural supply conditions are a major influence on Ethiopia's inflation, with food price movements playing a central role in shaping the overall consumer price index.
• The report recommends directing public investment towards agricultural value chains and improving the movement of food from producers to consumers.