The Inflation Dynamics of Ethiopia

Inflation is a social evil with its effects ranging from individual to the global level. Households, firms and the governments face price uncertainty on a daily basis and this has created a social chaos and reluctance among all the decision makers of the economy. It is believed that the major causes of inflation fall into either demand side or the supply side. But there is no consensus about which type of inflation resides in a specific economy. Ethiopia is not different to such. There is a controversy between the Government, World Bank and Individual researchers on what caused the inflation the country is experiencing. Therefore the need for a research on the causes of inflation was found necessary. This monograph investigates the main causes of inflation through econometric modeling by using time series data. Global oil prices, Exchange Rates, Broad Money Supply, Inflation Expectations explained by inflation inertia, Agricultural Output (As Ethiopia is predominantly an agrarian economy), Government Borrowing and Economic Growth are considered to explain the inflation dynamics of the country. The book further gives various recommendations based on the findings.