Inflation is the rate at which prices rise over time. It affects how much your birr can buy and the real value of your savings.
What Is Inflation?
When inflation is 10%, something that cost 100 birr last year costs about 110 birr this year. Your money buys less. Inflation erodes purchasing power.
Causes in Ethiopia
- Money supply: If the central bank prints more money or credit grows fast, inflation can rise
- Supply shocks: Drought, fuel price increases, or supply chain issues can push prices up
- Demand: Strong demand for goods and services can also drive prices higher
- Exchange rate: A weaker birr makes imports more expensive, which can feed into inflation
Impact on You
- Savings: If inflation is 15% and your savings account pays 8%, you're losing purchasing power in real terms
- Wages: If wages don't keep up with inflation, living standards fall
- Borrowing: If you have a fixed-rate loan, inflation can effectively reduce the real cost of repayment over time
The National Bank of Ethiopia
The NBE aims for price stability. It uses:
- Interest rates: Raising rates can cool demand and inflation
- Reserve requirements: Limiting how much banks can lend
- Exchange rate policy: Managing the birr to avoid excessive volatility
What You Can Do
- Save in instruments that beat inflation: Fixed deposits and bonds may offer better returns than basic savings
- Diversify: Some hold foreign currency or assets as a hedge, within legal limits
- Budget: Track spending and adjust as prices change
Follow NBE and government announcements for inflation data and policy updates.