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WFP Ethiopia Market Watch, August 2021

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• Inflation: the year-on-year headline inflation increased to 26.4 percent in July, up from 24.5 percent the previous month, the highest in nine years. The food-inflation increased to 32 percent in July 2021, from 28.7 percent in June. The surge in the food index is largely due to the skyrocketing of the indices of oils and fats, cereals, milk and dairy products. The year-on-year food inflation increase was the highest in SNNP (46.8 percent), followed by Afar (36.7 percent), Oromiya (33.9 percent), and Gambela (33.9 percent).

• Exchange Rate: Over the past 12 months, between August 2020 and August 2021, the official exchange rate of the Birr has lost its value by 27 percent against the US dollar. The exchange rate in the parallel markets showed extraordinary spike in the first two weeks of August, putting the depreciation to around 45 percent over the past 12 months as of August. The differential between the two markets widened to a record 44 percent in the first two weeks of August, although it contracted to around 30 percent afterwards. The National Bank of Ethiopia (NBE) ordered all commercial banks to temporarily suspend providing loans backed by land and buildings as collateral.

• Food price trends in Somali Region markets: the prices of wheat flour and rice spiked in Somali markets to a record level, underpinned by the depreciation of Birr at accelerated pace in the parallel markets towards the end of July and early August, sustaining food inflation. The firm upward pressure on the prices of imported cereals; however, modest decline was observed in mid-August due to the moderation in the exchange rate. Prices of maize increased in July in all of the monitored markets of Somali region, underpinned by the elevated prices from the source markets and limited availability owing to the failure of Belg harvest in most of Belg- producing areas of Oromia, SNNP, and Amhara.

• Terms of Trade (TOT) (Shoat to wheat flour): although the price levels of shoat showed an increase in Somali region in July compared to the previous month, the spike in the prices of cereals in the month triggered deterioration of TOT, implying the deterioration of the purchasing power of pastoralists.

• Minimum food expenditure basket (MEB) in rural Somali Region: The MEB for a household, required to meet its food needs in rural Somali, increased upwards from 1,014 Birr/person/month in June 2021 to 1,065 Birr person/month in July 2021. Compared to the values a year ago, households needed to spend 32 percent more money to meet their essential food needs in rural Somali. The Productive Safety Net Programme (PSNP) cash transfer can cover around 33 percent of the food needs of rural households in Somali region.

• Market and food security outlook: There are no signs indicating that the underlying inflationary pressure on food prices will be abated soon. Prices of locally produced grains are expected to rise further in the coming months due to the season compounded by limited availability following the failure of crop in belg producing areas. The wide differential of the Birr against US$ in the parallel market means imported staple cereals (pasta, rice, wheat flour) in Somali region will remain expensive. This will continue to jeopardize the food security status of poor households that rely on markets to access food and other essential needs.