Ethiopia’s inflation rate has moderated from the highs recorded in recent years, but persistent exchange-rate pressures, supply constraints and rising import costs continue to threaten price stability.
A recent report by the Ethiopian Economics Association found that annual headline inflation reached a peak of 34.04 per cent in 2022 before declining to 13.21 per cent in 2025. The moderation has brought some relief to households and businesses, although inflation remains higher than in several neighbouring countries.
The report attributed the decline to tighter monetary conditions, easing global commodity prices and improved supply conditions in some parts of the country. However, it warned that the disinflation trend remains vulnerable to external shocks, domestic disruptions and policy reversals.
Food inflation fell significantly between 2022 and 2025, declining from 38.05 per cent to 12.09 per cent. Non-food inflation, however, proved more persistent, falling from 28.35 per cent to 14.99 per cent over the same period.
Transport costs remained a major source of pressure. Transport inflation stood at 17.59 per cent in 2025, reflecting the impact of fuel-price adjustments, higher distribution costs and exchange-rate movements. Prices for miscellaneous goods and services also remained elevated.
The report said inflationary pressures have varied considerably across Ethiopia’s regions. Conflict-affected areas and import-dependent urban centres recorded stronger price pressures, while differences in market access, supply conditions and transportation costs contributed to regional disparities.
The transition to a more market-based exchange-rate regime in July 2024 has been one of the most important factors shaping recent inflation trends.
The Ethiopian birr depreciated sharply following the reform, increasing the local-currency cost of imported fuel, food, machinery, medicines and other essential goods. The exchange-rate adjustment also affected production costs for businesses that rely on imported raw materials.
The Ethiopian Economics Association identified exchange-rate reform and birr depreciation as the most important drivers of inflation, followed by domestic supply shocks and global commodity prices.
The report said the effect of exchange-rate changes on consumer prices could take several months to emerge. Businesses may initially absorb higher import costs, but these costs are eventually passed on to consumers through higher prices for goods and services.
Global developments have also influenced Ethiopia’s inflation trajectory. International energy and food prices rose sharply in 2022, while supply-chain disruptions increased shipping, transport and import costs. As global commodity prices and supply-chain pressures eased, Ethiopia’s inflation also began to moderate.
Despite the improvement, the country remains highly exposed to external shocks because it relies heavily on imported fuel, food products, manufactured goods and industrial inputs.
Ethiopia continued to record higher inflation than several East African economies in 2025. Inflation stood at 13.21 per cent in Ethiopia, compared with 4.07 per cent in Kenya, 3.33 per cent in Tanzania and 3.58 per cent in Uganda.
Across East Africa, average inflation declined from 19 per cent in 2024 to an estimated 15.3 per cent in 2025. It is projected to fall further to 12.4 per cent in 2026 and 9.1 per cent in 2027.
However, the regional outlook remains uneven. Sudan, South Sudan, Burundi and Ethiopia continued to record relatively high inflation, while Tanzania, Uganda, Kenya and Somalia maintained lower and more stable price growth.
The report said inflation in Ethiopia is driven by a combination of structural, supply-side and monetary factors rather than by excess demand alone.
An analysis of inflation dynamics found that inflation itself was the dominant source of short-term price changes, reflecting price inertia and inflation expectations. Money-supply shocks became more important over longer periods, while exchange-rate shocks gained prominence after the 2024 currency reform.
The findings suggest that monetary policy alone may not be sufficient to contain inflation. The report called for improved coordination between monetary and fiscal authorities, stronger agricultural production, better transport and logistics systems, and measures to reduce foreign-exchange shortages.
It also recommended improving the credibility and transparency of official inflation data, strengthening public communication and narrowing the gap between official and parallel-market exchange rates.
