The Causes of Hiking Ethiopian Consumer Prices

Abstract

A growing consumer price is creating instability in the macroeconomic environment and hinders the consumption level of especially the poor society. This paper then explored the major causes of such increasing consumer prices using Ethiopian cases. Using data from the National Bank of Ethiopia from 1982/1983 to 2019/2020, it condensed the information of monetary sector, external sector and fiscal sector variables to a small set to estimate the causes of Ethiopian consumer price hiking using the ARDL model. The factors determining consumer price differ from food to non-food. The most important factors determining food price are price expectation and fiscal factors. On the other hand, the main determinant of non-food consumer prices is the fiscal factor. The author also found evidence of fiscal factors and price expectation effects on general consumer prices. Therefore, to contain the rise in consumer prices, it needs to exercise conservative fiscal stances, which require minimizing deficit financing, reducing the import tax rate and reducing domestic indirect tax rates such as excise tax and value added tax on basic consumer goods and services. Moreover, sound government policies are essential to address inflation anticipations (providing information for society about the future of inflation) to change public opinion.