Ethiopia could struggle with double-digit inflation through 2030 unless the government combines tighter monetary control with stronger fiscal discipline and improvements in farm productivity and food distribution, according to a macroeconomic outlook published by the Ethiopian Economics Association. The report projects inflation at 16.54 per cent in 2026, declining gradually to 14.91 per cent in 2030. These projections assume annual broad money supply growth of around 25 per cent and a 5 per cent depreciation in the nominal effective exchange rate, based on historical patterns. The researchers, Mezid N. Keraga and Jeleta G. Kebede, stress that these are conditional simulations rather than official forecasts.
The study, covering economic developments between 1993 and 2025, identifies agricultural supply conditions as a major driver of inflation, noting that food prices have historically shaped the overall consumer price index. Headline and food inflation moved together between 2018 and 2022 before moderating through 2025, while non-food inflation peaked later and showed renewed upward pressure towards 2025. The authors link the latter trend to delayed transmission of higher imported input costs following foreign exchange reforms. However, their statistical model does not find a significant relationship between nominal effective exchange rate movements and overall inflation across the full estimation period.
The authors argue that tighter monetary and fiscal policies alone may prove insufficient when inflation also reflects constraints in agricultural productivity, storage and domestic logistics. They recommend directing public investment towards agricultural value chains to reduce supply disruptions and improve food movement from producers to consumers. The report also identifies government financing as an inflationary pressure, noting that public-sector credit expanded sharply after 2020 while private-sector borrowing faced restrictions. The authors describe this as fiscal dominance, in which government financing needs constrain monetary policy effectiveness.
To address the imbalance, the report recommends ending direct central bank advances to finance public deficits and shifting government borrowing towards competitive domestic debt markets. The authors favour replacing rigid administrative credit ceilings with interest-rate-based instruments, allowing productive private businesses access to finance. The report warns that prolonged inflation above nominal interest rates has reduced savings purchasing power and weakened incentives to keep money in formal financial institutions. Borrowers with substantial collateral can benefit from low inflation-adjusted borrowing costs, while savers bear real-term losses.
The recommendations combine overall monetary restraint with changes in credit allocation rather than uniform restrictions on all borrowers. The authors recommend allowing nominal interest rates to adjust more flexibly to restore positive real returns and support domestic savings mobilisation. They also call for targeted, temporary social protection measures to cushion vulnerable households against higher imported prices from foreign exchange adjustment. The report's model estimated inflation at 28.47 per cent for 2025, compared with an official figure of 13.9 per cent, a substantial discrepancy the authors treated as an outlier and excluded from baseline projections.
The central policy message is that reducing inflation sustainably requires coordination between monetary management, government financing and measures to expand supply. Restraining liquidity without addressing food-market bottlenecks would leave important sources of price pressure unresolved, the authors argue. For Ethiopian savers, prolonged double-digit inflation above nominal interest rates means purchasing power losses unless interest rates adjust upward; for borrowers, access to credit depends on collateral availability; for businesses, the allocation of credit between public and private sectors affects investment capacity.