The Ethiopian government has introduced a major increase in fuel prices, marking one of the largest overnight hikes in recent years. Effective October 8, 2024, gasoline prices rose to 91 birr per liter, while diesel reached 90 birr per liter, significantly up from the previous day’s rates of 82.60 birr and 83.74 birr, respectively.
This adjustment represents a 10.3% rise in the price of gasoline and a 7.8% hike in diesel. Additionally, kerosene prices have also climbed by 7.8%, now standing at 90.28 birr per liter.
A macroeconomist, speaking anonymously to Ethiopia Based Journal AS, expressed concern that this fuel price increase could further aggravate the nation’s already high inflation. “Fuel prices have a direct connection with inflation,” the expert explained, pointing out the significant impact on the non-food component of the Consumer Price Index (CPI), a key economic measure released monthly.
“The knock-on effects on other goods and services are likely to worsen the current cost of living crisis,” the economist added.
According to the latest data from the Ethiopian Statistical Service, fuel, along with utilities like water and electricity, accounts for 16.8% of the non-food component in the CPI. The report also revealed that as of August 2024, annual inflation had reached 17.2%, with non-food inflation at 14.7% and food inflation at 18.8%.
Many consumers are voicing concerns about the impact of these increases. Yohannes Daniel, a truck driver, foresees a surge in transportation costs, noting that the cost to transport a quintal could rise from 330 birr to as high as 400 birr. Likewise, a taxi driver operating between Megenaga and Legetafo explained that rising fuel prices, along with higher spare part costs, are significantly affecting his earnings.
During a press briefing, Ahmed Tussa, an advisor to the Minister of Trade and Regional Integration, justified the price hike, attributing it to fluctuating global oil prices and recent macroeconomic reforms, which have led to an appreciation of the local currency. He explained that while oil prices briefly dipped to $72 per barrel, they have since climbed to $80 due to instability in key regions.
Ahmed also highlighted that the government will bear much of the cost to shield consumers from further increases, particularly for diesel and kerosene, where 80% of the price difference will be subsidized by the state. For gasoline and aviation fuel, the government will cover 75%, leaving the remaining portion to be passed on to consumers.
“These subsidies will cost the government approximately 33 billion birr over the next three months alone, with the annual cost potentially exceeding 100 billion birr if global prices remain high,” Ahmed said.
Ethiopia’s recent macroeconomic reforms, introduced in July 2024, have caused significant currency fluctuations. Before the reforms, the exchange rate was 56.55 birr to the US dollar, but by October 8, it had soared to 112 birr.
A statement from the Ministry of Trade and Regional Integration noted that the government had maintained pre-existing fuel prices until October 8 to ease the economic strain on citizens during the holiday season. However, the cost of delaying the price increase amounted to 35.8 billion birr, which the government absorbed.
The Ministry further indicated that the disparity between Ethiopia’s domestic fuel prices and those in neighboring countries, where fuel costs are nearly double, has encouraged smuggling and black market activities.
Meanwhile, the National Bank of Ethiopia recently allocated $175 million to help fund upcoming fuel imports, aiming to support the Ethiopian Petroleum Supply Enterprise, the primary entity responsible for importing fuel and related products into the country.