Why Prices Keep Rising Even When the Birr Stabilizes
A steadier exchange rate can ease new cost pressure without bringing prices back down. Here is why household costs may keep rising and what else to watch.
A steady exchange rate does not reset the price level
Stability can slow new price pressure without lowering the existing price level. Suppose an importer pays 150 Birr per dollar instead of 100. If the rate holds at 150, the importer avoids another exchange-rate jump but still pays more than before.
A steady rate makes the cost of a future order more predictable. That order can still cost much more in Birr than it did before the currency moved.
Slower inflation still means prices are rising
Inflation measures the pace at which prices rise. When inflation falls, prices usually keep increasing more slowly. They return to an earlier level only if prices fall.
Imagine groceries cost 10,000 Birr. A 20% increase raises the basket to 12,000 Birr. If prices then rise by another 10%, it costs 13,200 Birr. Inflation has slowed from 20% to 10%, but the basket still costs more than before. These figures are an illustration, not Ethiopia’s measured inflation rate.
Old stock and long contracts can delay the effect
Shop inventory may have been ordered months earlier. Its cost includes the exchange rate on the order date, shipping, insurance, storage and borrowing while the goods were in transit. A seller may price around what it paid, even if the exchange rate has steadied since then.
The reverse can happen too. A retailer with stock bought at a lower cost may delay a price increase. Inventory, contracts, cash flow and competition all affect when a business changes its prices. The exchange rate may move first; shoppers can see the effect later.
Many costs move without the exchange rate
An imported product has two separate cost pressures: the supplier’s price and the exchange rate used to pay the bill. If a supplier raises a $100 item to $110 while the rate stays at 150 Birr per dollar, the cost before freight and tax rises from 15,000 to 16,500 Birr.
Local costs move too. Fuel, repairs and transport affect food grown in Ethiopia as well as imported goods. Wages and rent may be renegotiated only once or twice a year. Taxes, electricity tariffs and other administered prices follow their own schedules. Weather, harvests and road conditions affect what reaches markets and what it costs.
Different products respond at different times
A shop with cheaper replacement stock may lower prices quickly, especially if nearby competitors do the same. Another may keep prices up to recover earlier costs or repay a loan. Products with few sellers face less pressure to pass savings on than goods shoppers can easily buy elsewhere.
Food prices have their own timing. A good harvest can increase supply and ease prices in one season. A poor harvest or expensive transport can push them up. The exchange rate alone cannot explain the price of teff, vegetables or cooking oil in a particular market.
What to watch alongside the Birr
The exchange rate helps explain the cost of imports and imported materials, but it cannot explain every household bill. Look at monthly inflation and separate food and non-food price trends. Fuel, transport and electricity costs can add pressure even when the currency moves less.
Our [guide to inflation and the Birr](/business/how-does-inflation-affect-the-exchange-rate) explains how inflation and exchange rates affect each other. The question here is narrower: even if the Birr steadies, prices can keep rising while earlier costs and other pressures work their way through the economy.