Can inflation be a good thing for the poor? Evidence from Ethiopia

In 2006–08, Ethiopia experienced high food and non-food inflation. This study shows that the recent inflationary spell is likely to have significantly worsened poverty in urban areas, given the reliance on the market for most consumption needs. In rural areas the distributive impact of inflation is less easy to measure. In Ethiopia’s rural areas, many households are net food buyers, and non-food items weigh significantly in their budgets. Thus, it seems unlikely that high inflation was beneficial for poverty reduction, a position which seemed to underpin much of the policy response to the crisis.