The government is back at trying to tame the reigns of the economy to address the raging inflation hitting especially hard the pocketbooks of urbanites. Thus far, officials have appeared to be fairly helpless to snag the runaway prices at the roots and construct proactive policies. The present piecemeal interventions are no drastic departure from this trend.

Moves in the past few months by the National Bank of Ethiopia (NBE) to raise the interest rate by a single percentage point and up the reserve requirement have not reverberated through the economy. Combined with this slight tinkering of monetary instruments, accusations and threats against alleged hoarders as well as grain subsidies for urban poor are not the bold moves the rising prices appear to beckoning for to be controlled.

The latest woe of consumers is the drastic increase in the price of red pepper (berbere), doubling the cost of the common ingredient in many national dishes. The cause of such a dramatic hike is unclear.

The solutions to inflationary pressure, though they appear to be politically unpalatable judging from government inaction, are more apparent. As advocated by international financial institutions and this newspaper, bold monetary and fiscal moves are the bitter medicine the economy needs. Contractionary policies, curbing fiscal spending and more severe moves on the part of the central bank to tighten the credit supply that has grown by about 200pc in the past four years, would throw the brakes on price pressures.

Last week's press conference delivered by Ahmed Tussa, state minister of Trade and Industry, however, showed the government is fonder of an approach that hits at the symptoms of the problem rather than tackling the root causes. Moreover, the announcement of government intervention in the sugar and edible oil markets signal a refusal to waver from a philosophy of government control of many aspects of markets best left to private sector actors. It is only when the underlying economic philosophy of the leaders of the country change that the structural inefficiencies will cease to plague markets and contribute to the inability of the invisible hand to meet the needs of economic actors.

The Minister's plan to lower the floor price of sugar auctions from the previous 612 Br per quintal to 500 Br per quintal aims to lower the end price offered to consumers. Though sugar prices have not been characterised by the steady price increments many other basic commodities have been subject to, a shift in budget allocations of consumers from sugar to other goods would ease the overall expenditure on a normal basket of food items.

However, fiddling with the price of this single item is far from providing a full-fledged solution to consumers. Moreover, it points to the virtual state monopolisation of many aspects of the sugar market that have created a path dependence on the controlled structure of the sector. In the long term, simply furthering this inefficient structure will do more harm than good.

In the present, the three state sugar factories are incapable of meeting domestic demand, not due to a lack of land or labour or any other production input, but a mere inability, all to common in government monopolised markets, to capitalise on demand and turn a profit. Constrained by government management and lacking the proper profit motives driving private firms, the factories are unable to conjure innovative ways to increase production and meet the demand.

The government's solution to this shortage has been to begin laying the groundwork for yet another state factory and add imports to the state-run auctions of sugar. It is here where the private sector enters the market left to trim profits from distribution and value-added activities.

The new policy to lower the price will cut the revenue the government generates from sugar sales. Though the price paid by consumers may be lowered depending on how cutthroat the distribution market proves to be in terms of driving economic profits down on the part of wholesale buyers, the government will also be adding to its budget deficit. The decrease in money it has to fund the largest ever federal budget of 43.9 billion Br must be borrowed and adds inflationary pressure, possibly offsetting any positive impact the decrease in sugar prices may have.

This textbook economic reaction is the catch in government interventions, as it shows how often policy makers are apt to not follow through to analyse the second and third degree price effects of policies that appear sound at first glance.

To really address inflation through altering the structure of the sugar supply would imply slowly weaning the market off reliance on government production and distribution chains by encouraging the private investment that would exploit the potential laying dormant in Ethiopia's some 80 million consumers.

The meddling in the supply network of edible oil attempts to cut out the middle men that stand between importers and end users of the product. According to a study undertaken by the Ministry of Trade and Industry (MoTI), the palm oil imported predominately from the Far East (about 70pc) was entering the country at about 15 Br per litre, while consumers were faced with a more than 50pc mark-up at an average of upwards of 22 Br per litre. The government's solution is to cooperate with importers and buy the oil at a fixed price and sell it at 15 Br per litre.

Taking over the role of the middle men to distribute the product may be welcomed by consumers who will pay a lower price, though the bill to create and operate the distribution network necessary to carry out the plan must be considered. A pressing question to be asked is why the middle men were able to take such a hefty profit. It is in finding the answer to this question that government may be able to take a more cost-effective and less heavy-handed approach, instead of completely taking the process into its own grasp. The opportunity for the distributors in rent-seeking may reveal deeper market problems that need more sustainable measures.

Lifting the surtax from edible oil is a more direct strategy and approach welcomed both in the spirit of free market promotion and because basic commodities demanded in relatively similar quantities by both the rich and poor are not the best targets of a progressive tax system. It is the people that have apparently benefited most from the provision of government services that should pay the most for them in the form of higher taxes.

The other components of the past week's press conference should be seen as more rhetoric from a government that has been chasing the elusive and seemingly uncontrollable force of inflation. More pointing of fingers at alleged hoarders, this time of red pepper, touting of supposed success with grain subsidies in bringing consumer costs down and promises of further studies are meant to re-assure a public that seems to be at the end of its wits trying to cope with household budgetary demands.

The more important questions that point to the deeper problems lying beneath the surface are why the government always must be the initiator of studies and solutions to problems so obviously harmful to society such as inflation.

Is it the lack of human capital, relatively docile educational institutions, lack of private sector incentive or any number of other entrenched barriers to effective information dissemination and utilisation that bars other agents from authority on these issues?

The government is in part to blame as its state-directed development philosophy places itself squarely in this role of the problem solver. While the advantages in terms of state power to this strategy are clear, the long-term growth of a private sector that may elevate the living standards of people in one of the poorest nations in the world may be sacrificed.

For now the public will continue to toil to make ends meet as the government sees inserting its hands further into markets as the best temporary solution to economy-wide inflation.