Long after macroeconomic policymakers declared "Mission Accomplished"
in arresting the tide of inflation, sceptics were
reluctant to accept that they were proven wrong.
They had held their foot to the ground claiming that
inflation was not out of the woods. Not yet, gossip
Well, it had once seemed that the administration did succeed in keeping
inflation at bay. Back in July and August 2010, it
was indeed true the pace at which prices were
escalating went down to single digits, true to the
statement made by the Prime Minister.
Alas. To the disappointment of his administration,
its critics were proven to be correct since
September 2010; last week, the federal agency in
charge of monitoring prices disclosed that headline
inflation has picked up to a staggering 39.2pc.
What causes prices to keep going up are reasons as many as the number
of economists willing to speak on the subject,
gossip noticed. One count has it that there are at
least seven reasons, although the two (whether
inflation in Ethiopia is imported or it is due to
the administrationís fiscal expansion, hence
monetary pressure) are the most controversial. There
is a political significance behind any conclusion on
either of the possibilities.
The Prime Minister and his macroeconomic advisors have been on the
record for a couple of years (in fact up until
recently) arguing that inflation was imported, only
to be challenged by economists from the IMF that it
is a largely monetary phenomenon. The contribution
of the partly imported inflation could not be higher
than 5pc, they claimed.
To the surprise of many, the Prime Minister came around during his
appearance in Parliament in June to concede that
broad money growth (which simply means the printing
of notes by the Central Bank) has a lot more to do
with inflation than what he originally had thought.
He has also promised not to let his administration
borrow from the Central Bank during the current
fiscal year, while pledging to cut the growth of
money in the economy below zero.
At the gossip corridors, these were thought to be promises too good to
be true. Judging by the look of things from the
start, those at the gossip corridors have reasons to
be weary of their anticipation. The Central Bank is
now in full gear to put out auctions to hire
international printers to print 50 and 100 Br notes
with values double the amount of three years ago,
gossip disclosed. Back then, the Central Bank is
believed to have printed notes worth between 100
million to 300 million Br.
Officials responsible for currency circulation have actually visited
major note printers in France, the United Kingdom
and Germany over the past couple of months, gossip
Subsequent to the massive devaluation of the Birr against a basket of
major currencies, Ethiopians have seen the
purchasing power of their currency dwindle by the
day. They have reached at a point where one Birr
buys nothing of value anymore; this was not a fact
illusive to the central bank which introduced a coin
with the value of one Birr, circulating parallel
with the note.
Nonetheless, people have to carry a bag full of money to buy assets of
real value. Whether or not it is time perhaps to
introduce new bills with a value of 500 Br and 1,000
Br is strongly being contemplated by the authorities
at the Central Bank, claims gossip. However, this is
an idea which may not win a nod from a place of the
highest order, for fear of fuelling inflation,