The Ethiopian statistics agency announced on Friday that the annual inflation rate fell to 39.8% in October. This is a decrease from the 40.1% inflation recorded last month according to the statement by the agency.

Food prices, however still increased this month largely due to the price of cereals according to the Statistics Agency. The total price index of cereals has seen an increase of 63.1% in comparison to the same month last year explained the agency.

It is to be remembered that the Ethiopian government’s plan to reduce inflation to single digits came under criticism from the international financial institutes.

The international Monetary Fund had predicted on 31 May 2011 that inflation might undermine economic growth in Ethiopia. IMF had said that the economy would fall from 7.5 percent this year to 6 percent in the 2011/2012 fiscal year and that the country's monetary policy was pushing up inflation which, combined with restrictions on bank lending, would in turn bring about a slower economic growth.

The inflation is something that the Ethiopian government has taken into consideration and is working towards alleviating says Meles Zenawi Prime Minister of Ethiopia. The high rates of inflation were caused by multiple challenges including the effects of the global market he explained.

Local factors for inflation are the unexpectedly high amounts of foreign currency reserves at the central bank and faulty deficit financing by the government in the last fiscal year said Meles. The Prime Minister asserted that foreign currency will be properly utilized in purchasing and that government will not borrow directly from the central bank this budget year to eliminate local factors of inflation.

Source: Reuters