WFP Ethiopia Market Watch, March 2022



• Inflation: Ethiopia’s inflation remained in two digits for the last three years, despite government efforts to contain inflation to a single digit. The headline inflation slightly reduced from 34.5 percent in January 2022 to 33.6 percent in February 2022; however, food inflation increased primarily driven by surging bread and cereals, and fats and oil indexes, rising food inflation from 39.9 percent in January 2022 to 41.9 percent in February, the second highest rate in a decade. The highest food inflation for February 2022 were recorded in Harari (49.9 percent), Gambela (48.3 percent), and Benishangul Gumuz (47.7 percent).

• Exchange rates: the National Bank of Ethiopia has slowed down the rate of creeping devaluation in February and March, with 1USD for ETB 50.92 by March. On the parallel market, 1USD was exchanged for ETB 64 in February 2022.

• Implication of the war in Ukraine on food security in Ethiopia: prices of fuel, food (wheat and vegetable oil), fertilizers, steel and iron have increased in the international markets since the war started. Ethiopia imports large amounts of wheat, with about 25 percent of domestic demand for wheat met through imports. The price transmission of wheat from global market is expected to be severe in Somali region. The price of fertilizer has nearly tripled, which may constrain farmers from using fertilizer, with negative repercussions on production and food prices. The elevation of the prices of iron and steel is expected to dampen employment opportunities in the construction sector. As the Government of Ethiopia (GoE) is moving away from fuel subsidy, a surge in fuel pump prices will further escalate the cost of living, both through food prices and supply chain-related fuel costs.

• Prices in conflict affected areas in Northern Ethiopia: When compared to prices in Dessie (reference market), the prices of maize, sorghum, and wheat grain are 51, 39, and 21 percent higher in Mekelle. Imported items such as rice and edible oil are being sold at prices that are 166 and 141 percent higher. A similar trend was recorded in Afar in Sekota and Chifra markets, with higher prices for maize and sorghum observed when compared with Dessie markets.

• Terms of Trade (measure of purchasing power): in February 2022, an average sized goat in Kebridehar market of Somali region could only fetch 62 Kgs of maize compared to the 118 kgs at the same time last year, while only 54 kgs of wheat flour could be bought relative to 79 kg in February 2021.

• Market and food security outlook: Underpinned by the disruption due to the war in Ukraine, the broad supply of money to finance the budget deficit, the production loss and trade disruption due to the ongoing conflict in Northern Ethiopia, the anticipated spike in fuel pump prices and the upward tendency in the prices of food and non-food commodities (including fertilizer, steel and iron, vegetable oil, etc) in the international market is expected to drive inflation even to higher levels which worsens the food access among market reliant households.