Inflation and Associated Potential Political Risks in Ethiopia

During the period between 2015–2025.

Introduction

Over the past decade, Ethiopia has undergone significant economic transformations, characterized by rapid GDP growth, structural economic reforms, and profound challenges such as recurrent inflationary pressures (African Development Bank Group, 2025). Moreover, between 2015 and 2025, inflation emerged as one of the country’s most critical macroeconomic issues, influencing economic stability and the broader political landscape (MacroTrends, 2024; Trading Economics, 2024). Additionally, persistent inflation can exacerbate social tensions, fuel political discontent, and erode trust in governance (Financial Times, 2025; Reuters, 2025). Therefore, this article examines the inflation trends during this period, explores the underlying causes, and assesses the potential political risks associated with continued inflationary pressures.

Inflation Trends (2015–2025)

Ethiopia’s inflation rate has shown significant fluctuations over the past decade. The table below summarizes the annual inflation rates from 2015 to 2024:

Ethiopia’s annual inflation rates from 2015 to 2024

Source: MacroTrends (2024); Trading Economics (2024)

As shown above, inflation remained relatively moderate until 2018 but sharply accelerated starting in 2019. The inflation rate peaked at an alarming 33.89% in 2022, driven by domestic and external factors. However, recent reports indicate that inflation declined to 17% by December 2024, signaling some stabilization efforts (Addis Standard, 2024).

Factors Contributing to Inflation

Several domestic and international factors have contributed to Ethiopia’s high inflation rates during the 2015–2025 period:

1. Currency Depreciation

One of the most significant contributors has been the depreciation of the Ethiopian birr. Conversely, in July 2024, the National Bank of Ethiopia (NBE) devalued the birr by 30% against the U.S. dollar to transition toward a market-based foreign exchange system (Birr Metrics, 2024). While this reform aimed to attract investment and promote exports, it also led to an immediate increase in the prices of imported goods, exacerbating inflationary pressures.

2. Supply Chain Disruptions

Internal conflicts, particularly the Tigray war and associated unrest in regions such as Oromia and Amhara, severely disrupted supply chains across the country (Financial Times, 2025). As a result, the destruction of infrastructure, impediments to transportation, and general insecurity restricted the movement of goods, reduced supply, and pushed prices upwards.

3. Global Economic Shocks

External shocks, including the COVID-19 pandemic and geopolitical tensions such as the Russia-Ukraine war, significantly impacted global commodity prices. Furthermore, rising food, fuel, and fertilizer costs transmitted inflationary pressures to Ethiopia (African Development Bank Group, 2025). Consequently, Ethiopia’s dependence on imported goods made the economy particularly vulnerable to such external disturbances.

4. Fiscal and Monetary Policies

Expansionary fiscal policies aimed at financing ambitious infrastructure projects, coupled with significant budget deficits, have also fueled inflation. Although the government attempted monetary tightening measures, such as maintaining a policy rate of 15% (Addis Insight, 2024), these efforts were often insufficient to fully contain inflationary dynamics.

Recent Developments and Projections

Encouraging signs have emerged over the past year. By December 2024, Ethiopia’s inflation rate had declined to 17%, down from above 30% in 2022 and 2023 (Reuters, 2025). Meanwhile, the National Bank of Ethiopia has adopted a more restrictive monetary policy stance, is maintaining high policy rates, and closely monitoring liquidity (Fitch Solutions, 2024).

Additionally, Ethiopia has embarked on an economic reform program in collaboration with the International Monetary Fund (IMF), involving a four-year, $3.4 billion package focused on macroeconomic stabilization, debt restructuring, and foreign exchange liberalization (Ethiopian Tribune, 2025). The IMF forecasts that inflation will further decline to around 10% in the 2025/2026 fiscal year—the lowest rate Ethiopia will have achieved in over a decade.

However, analysts caution that inflation could remain vulnerable to supply-side shocks, ongoing political instability, and global market volatilities. A sustainable solution will require structural reforms that go beyond monetary constraints. For instance, Ndikumana et al. (2021) stipulate that “the empirical results show that disequilibria in the monetary sector, grains sector, and food markets have long-term effects on inflation. Alternatively, in the short run, inflation is driven by structural factors (notably, cereal output gaps and imported inflation) as well as demand-side factors (notably, money growth and public sector borrowing).”

Potential Political Risks

Persistent or resurging inflation poses several political risks that could destabilize Ethiopia’s fragile socio-political environment:

1. Public Discontent

Rising food and energy prices directly impact household welfare, particularly among low- and middle-income groups. Furthermore, inflation erodes real incomes, reduces purchasing power, and increases living costs, thereby fostering widespread public dissatisfaction. Meanwhile, historical evidence from Ethiopia and other countries suggests that economic grievances often catalyze protests and civil unrest (Financial Times, 2025).

2. Erosion of Trust in Government

If inflation remains high or resurges, it could severely undermine public trust in the government’s ability to manage the economy. As a result, failure to control inflation would likely fuel narratives of mismanagement and inefficiency, which would be particularly damaging in an already polarized political environment (African Development Bank Group, 2025).

3. Worsening Social Inequality

Inflation disproportionately affects the poor, who spend a larger share of their incomes on food and basic necessities. Consequently, persistent price increases without corresponding wage growth widen income inequality, exacerbate social divisions, and deepen grievances among marginalized communities (African Development Bank Group, 2025).

4. Political Instability

Regions already experiencing tensions, such as Oromia and Amhara, could see inflation compound existing grievances, leading to heightened political instability. In fact, economic hardship might strengthen radical political groups and intensify demands for greater regional autonomy or political reform. Furthermore, with Ethiopia’s scheduled general elections in 2025, inflation and economic performance will likely play a central role in shaping public opinion and voter behavior (Fitch Solutions, 2025). The ongoing tensions between Ethiopia’s federal government and the Tigray region could be further aggravated by persistent inflation, which disproportionately affects conflict-affected areas like Tigray, where supply chain disruptions and economic dislocation have exacerbated price volatility (International Crisis Group, 2024).

Conclusions

While recent reforms and monetary policy adjustments have shown promise in curbing inflation, Ethiopia must remain vigilant in addressing its structural economic weaknesses. As a result, sustainable inflation control requires a holistic approach: enhancing agricultural productivity, strengthening manufacturing sectors, ensuring peace and security, reforming fiscal policy, and continuing financial sector reforms.

Alternatively, failure to manage inflation effectively could trigger broader political crises, undermining governance, social cohesion, and Ethiopia’s long-term development trajectory. Thus, continued collaboration with international partners like the IMF, prudent economic management, and targeted social safety nets are crucial for maintaining macroeconomic and political stability over the next decade.

References

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• Addis Standard. (2024). National Bank of Ethiopia (NBE) reports inflation rate drop to 19.9% in June 2024. Available at: https://addisstandard.com/nbe-reports-inflation-rate-drop-to-19-9-in-june-2024/ (Accessed: 25 April 2025).
• African Development Bank Group. (2025). Ethiopia Economic Outlook. Available at: https://www.afdb.org/en/countries/east-africa/ethiopia/ethiopia-economic-outlook (Accessed: 23 April  2025).
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• Reuters (2025). Ethiopia’s inflation rate to decline to 10% in 2025/2026 fiscal year. Available at: https://www.reuters.com/world/africa/ethiopias-inflation-rate-decline-10-20252026-fiscal-year-2025-04-24/ (Accessed: 24 April 2025).
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