At a crowded marketplace on the outskirts of the capital, the signs of strain are everywhere. A mother carefully counts her notes, and then quietly puts the cooking oil back on the shelf when she realizes she cannot afford the 460 Birr per liter price tag. Elsewhere, a taxi driver argues over fuel prices that have doubled his daily costs and a vegetable trader watches produce spoil before it ever reaches the city.
Transport fares rise without notice. The line at the neighborhood minibus stop has barely moved. Drivers shake their heads—no fuel, or not enough to make the trip worthwhile. Traders argue with customers who can no longer afford yesterday’s prices.
An elderly woman, clutching a small bag of vegetables, turns back home, “Yesterday this cost me 50 Birr,” she says quietly. “Today it is 90. Tomorrow… I don’t know.”
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On the bustling eve of the Easter holiday in one of the capital’s crowded marketplaces, Shola Gebeya, a young woman stood behind her stall selling butter and other dairy products.
Speaking to The Reporter Magazine, she explained that she is part of a family business that has been running for four generations. Although she has been actively involved in the trade for the past four years, she admits the current prices are unlike anything she has ever experienced.
“A kilo of fresh butter is selling for 2,000 Birr,” she said. “I’ve never sold butter at this price. It’s deeply shocking, even as a trader.”
Despite her distress, she says her hands are tied.
“It is heartbreaking to sell butter at such a high price, but there is nothing I can do,” she said. “We are sourcing these products under very difficult conditions. The areas we bring them from are not secure, and transportation costs have become extremely expensive.”
Butter is far from the only commodity commanding never before seen prices. A kilo of onions, for example, now goes for up to 100 Birr, nearly three times what consumers were paying just a few weeks ago.
The same holds true for virtually every item on a typical grocery list. Over the past two months in particular, prices of both food and non-food items have surged at an alarming pace. In local markets, consumers report that the cost of essential commodities, from grains and cooking oil to transportation and household goods, has in some cases doubled within a remarkably short period.
Partly, this crisis lies a force far beyond Ethiopia’s borders: a global oil shock driven by disruptions in the Gulf. Global oil prices surged by more than 50 percent in recent months, sending shockwaves across import-dependent African economies. For Ethiopia, the impact has been immediate.
The Crisis Before the Crisis: Internal Fragility
While the ongoing global oil crisis is undoubtedly having an effect on the economy, academicians like Atlaw Alemu, an assistant professor of economics at Addis Ababa University, observe that today’s problems trace back much further.
“It’s not just about the fuel, or the interruption of fuel supply; the country is currently in a state of war. It is in a crisis. Transporting freely from one place to another is impossible. Moving goods, like agricultural products, from where they are produced to their respective markets is difficult. There is no security. It’s a difficult situation for both drivers and vehicle owners. And this isn’t just happening since the Middle East war started. This has been a persistent problem for years but now we can say it’s getting worse,” said Atlaw.
To the expert, the unbearable cost of living comes down not only to the war in Iran, but is also shaped by existing structural weaknesses and internal fragility. The current crisis is exposing deeper structural weaknesses in Ethiopia’s economy.
Noting that the current global oil crisis, driven by the Middle East conflict, is already having a significant impact on the Ethiopian economy, Molla Alemayehu—an economist at the Ethiopian Economists Association—argues that the focus should shift from debating whether the crisis has an impact to identifying practical measures to mitigate its effects.
A Nation Dependent, A Shock Multiplied
Ethiopia does not produce oil. It imports it, along with many essential goods. When global fuel prices rise, the effects ripple through every layer of the economy. Transport costs increase. Food prices follow. And for the poorest households, who spend most of their income on food and energy, the consequences are severe.
“It is very difficult for our country. We are low-income, import-dependent, and we do not produce oil,” said Atlaw.
This triple vulnerability is now colliding with a fourth factor: internal instability. Transport disruptions, insecurity, and logistical bottlenecks have made it increasingly difficult to move goods from farms to markets or from ports to cities.
The Currency Trap
The crisis has been compounded by exchange rate policy shifts. Following exchange rate liberalization policies influenced by institutions like the International Monetary Fund, the currency has depreciated sharply. While such policies are often designed to correct imbalances, their impact in Ethiopia has been severe.
Imports in Ethiopia are not optional. In theory, a weaker currency should reduce imports. In reality, Ethiopia imports essentials it cannot do without: food, fuel, medicine, raw materials.
“Meanwhile, essential imports, from wheat to industrial inputs, become more expensive as the Birr continues to depreciate” Atlaw explains. “That cost goes directly to consumers.”
The Birr has depreciated by around 80 percent in the weeks following the government’s liberalization of the forex market in July 2024. In the nearly two years since, that figure has risen to close to 200 percent.
“It was done under the guise of a ‘floating exchange rate,’ supposedly to be determined by the market. But it just took off; [the exchange rate] is sky high now,” said Atlaw.
As the Birr weakens, the cost of these essentials rises automatically, fueling inflation and eroding purchasing power.
“So imports continue,” says the economist. “But at a much higher cost. That is why the cost of living keeps rising.”
The Illusion of Easing Inflation: Lowering on Paper vs. Crisis on the Ground
Despite all this, government figures suggest inflation is easing. The latest reports from the state statistics agency put headline inflation at 9.7 percent in February 2026 and 9.4 percent for March.
On paper, this signals progress. However, in reality, the lived experience of millions of Ethiopians tells a very different story: prices are not easing, they are accelerating, purchasing power is shrinking, and economic anxiety is rising.
For low-income households, cooking oil, bread, and transport fares, essentials that once formed the backbone of daily life, have become hardly affordable, prices are unpredictable, sometimes doubling in just weeks.
At the heart of this discrepancy lies the difference between statistical averages and real-time price shocks. Inflation figures are typically calculated based on a basket of goods over a defined period, which can smooth out short-term spikes. While this method is useful for tracking long-term trends, it often fails to capture sudden, sharp increases in key essentials, especially food and fuel.
Moreover, the distinction between core and headline inflation is crucial. Core inflation, which excludes volatile items like food and energy, may indeed be stabilizing. But for ordinary Ethiopians, particularly low-income households, headline inflation is what matters most.
Molla(PhD) emphasized that the government must first investigate the root causes of persistent inflation—issues that predate the current external shocks—in order to address the problem at its source. Without decisive action, he warned, prolonged inflation could become increasingly difficult to reverse, posing serious risks to economic and political stability.
The Harshest Burden Falls on the Low Income Households
For wealthier households, rising prices may mean tightening discretionary spending. For low-income families, it is a matter of survival. When food and energy consume the majority of income, even modest price increases can force difficult trade-offs between meals, healthcare, education, and shelter.
In every corner of the markets in Addis Ababa, traders speak of a lack of customers.
“People don’t buy in kilos anymore,” one vendor says. “They buy in cups—just enough for today.” In low-income neighborhoods, families quietly reduce meals, stretch ingredients, or rely on credit from small shops that are themselves struggling.
The current surge comes on top of years of persistent inflation, meaning households have already depleted savings and coping mechanisms. Informal credit, reduced meal frequency, and substitution with lower-quality goods are becoming increasingly common. The cumulative effect is a steady erosion of living standards and a growing risk of social vulnerability.
And unlike wealthier nations, Ethiopia has limited fiscal space to cushion the blow through subsidies. Atlaw emphasizes a harsh reality: “Unlike other countries, it is hard for us to provide support or subsidies… finding a solution is very difficult.”
A Government of Trade-Offs: The Question of Priority
In the face of limited resources, the government faces difficult choices.
“Fuel is scarce,” the economist notes. “So where should it go? To security operations? Or transporting food?” This is the central dilemma: prioritization.
With multiple crises unfolding simultaneously, the allocation of scarce fuel, foreign currency, and public spending becomes a matter of life and death.
“Every decision has a trade-off,” says Atlaw. “The question is: what is most important?”
Should fuel be reserved for stabilizing conflict zones, or ensuring food reaches urban markets? Should foreign currency fund essential imports, or other expenditures?
“There must be a clear list of priorities,” he insists. “And food security must be near the top. However, I don’t think that the government has a clear identified priority yet. If the government has priorities they are unknown to us [economists] and to the general public, so that it is very difficult to suggest possible recommendations” said Atlaw.
Policy Questions: What Can Be Done?
The pressing question now is not whether the cost-of-living crisis is real but how policymakers will respond. Addressing this challenge requires both immediate relief measures and longer-term structural reforms.
In the long term, the fundamental solution lies in reducing dependency—transforming the economy from oil-dependent to non-oil-dependent. To achieve this, Molla (PhD) highlighted the importance of accelerating the transition from oil to electricity and other renewable energy sources, supported by expanded and strengthened infrastructure.
“In the short term, the government has proposed fuel-prioritization measures to ease the crisis, but recommendations alone are not enough—they must be operationalized,” Molla said.
He added that encouraging remote work could help allocate limited fuel and transport resources to the most critical sectors. The government should also consider targeted subsidies to protect the most vulnerable groups. At the same time, tightening controls on illegal fuel trade and speculative practices would be essential to stabilize the market; otherwise, the burden could become devastating, particularly for low-income households.
In the short term, targeted interventions are essential. These may include temporary fuel subsidies, expanded social safety nets, and market stabilization efforts for key food items. Ensuring efficient supply chains and preventing market distortions, such as hoarding or speculation, will also be critical.
In the medium to long term, reducing dependence on imported fuel, investing in domestic production, and strengthening agricultural resilience can help cushion the economy from external shocks. Equally important is improving the transparency and responsiveness of inflation reporting, so that policy decisions are grounded in the realities faced by citizens.
But above all, the expert urges the need for peace.
“Without peace, nothing works,” said Atalw.
No policy, monetary or fiscal, can function effectively if goods cannot move, markets cannot operate, and investors cannot commit.
“First, peace,” he emphasizes. “Then everything else.”
As global shocks intensify and domestic challenges persist, the question is no longer whether Ethiopia will feel the impact, but how deeply, and for how long. The answer may well depend on the choices made now, about priorities, protection, and the path toward peace and stability.
