Attachments
KEY HIGHLIGHTS
Exchange Rate Fluctuations and its Impact on Market Prices: In January 2025, the Afghani depreciated by 7.2% against the USD, reaching 74.5 AFN/USD, marking a 3.8% decline year-on-year. The suspension of U.S. humanitarian aid and reduced foreign currency inflows triggered a sharp depreciation in the second half of the month, leading to rising market prices, particularly for imported food and fuel. The Afghani briefly surged to 84 AFN/USD before Da Afghanistan Bank (DAB) intervened with dollar auctions—$20 million on January 25 and $25 million on January 27—stabilizing exchange rate by end of the month. While market prices saw temporary fluctuations, they remained slightly higher than the previous month due to exchange rate instability, supply concerns, and uncertainty in the market. Continued volatility in the Afghani could add inflationary pressure on essential commodities in the coming months.
Inflation Trends (2024): Afghanistan's inflation rate remained in deflation throughout 2023 but showed an upward trend by the end of the year, rising from -10.2% in January to -1.8% in December 2024. Food inflation followed a similar pattern, recorded at -4.5% in December. Deflation persisted for key food items, with bread and cereals at - 8.3%, oils and fats at -11.1%, and sugar at -9.6%, while non-food inflation stood at 0.98%.
Despite concerns about deflation slowing economic growth, it continued to ease the cost of essential goods and services for vulnerable households. However, the gradual shift toward inflation suggests possible price increases in the coming months, particularly for imported food items, which are highly sensitive to global market trends, exchange rate movements, and domestic economic conditions.
Global Market Trends: In January 2025, global cereal and cooking oil prices have shown signs of stability amid ongoing import dependency. The FAO Cereal Price Index held steady at 114 points, marking a 6.9% decline year-on-year, while wheat export prices remained largely unchanged due to weak demand and concerns over supply shortages.
Wheat flour prices rose slightly by 1.2% month-on-month but remain 2% lower than last year. Cooking oil prices also saw a modest increase of 0.8%, driven by exchange rate fluctuations. Despite a decline in the FAO Vegetable Oil Price Index, cooking oil prices in the country are 24% higher than last year. Global fertilizer prices rose marginally in January, influenced by export restrictions and demand shifts. The upcoming EU tariffs on Russian imports, coupled with shifts in global potash supply, are shaping the market dynamics, with countries reliant on imports facing challenges from trade disruptions and policy changes.
Food Basket Prices: In January 2025, the national average price of the WFP’s in-kind food basket was AFN 5,414, showing a 1.5% increase from the previous month. However, since July 2022, the price of the WFPs’ in-kind food basket is showing a declining trend, driven by lower prices for major food items, the appreciation of the Afghani, reduced inflation rates, and a decrease in global food prices. However, slight upward movement was observed during the year 2024. Meanwhile, the price of the food basket varies across provinces; the cheapest market for food items in January was Baghlan with the food basket priced at AFN 4,847, whereas Nuristan remains as the most expensive market with the same food basked priced at AFN 6,326.
Labour Market and Terms of Trade (ToT): Seasonal labour availability affects income and purchasing power of HHs. While agricultural labour demand peaked during harvest seasons, offering temporary employment opportunities. In contrast, construction labour demand declined in winter due to reduced activity in the sector, worsening unemployment challenges, particularly in urban areas. Meanwhile, the ToT for casual labour is declined compared to last month due to low level of labour during this season and a slight increase in the prices of wheat grain.