There is a costly misunderstanding at the heart of many economic debates: the belief that when inflation falls, life becomes affordable again. It does not.
Lower inflation means prices are rising more slowly. It does not mean prices have returned to where they were. It does not mean wages have recovered. It does not mean rents have fallen. It does not mean food has become cheap. It does not mean a family that has already sold assets, reduced meals, borrowed money, delayed medical care or withdrawn a child from private school has been made whole. This distinction matters everywhere. In Ethiopia, it matters even more.
For policymakers, inflation is a rate of change. For households, the cost of living is a level of pain. Inflation tells us how fast prices are moving. The cost of living tells us whether people can afford to live with dignity. One is a statistic. The other is an experience.
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That is why an economy can report improving inflation while citizens continue to feel poorer. The data may say price pressure is easing. The market may say something else. A mother buying cooking oil, onions and bread does not ask whether the annual inflation rate has declined. She asks whether the money in her hand can still feed the family. A salaried worker does not live inside a consumer price index. He lives inside rent, transport fares, school fees, medicine costs and food prices. The gap between inflation and the cost of living is the gap between macroeconomic stabilisation and human recovery.
Ethiopia has lived through years in which this distinction became painfully clear. Prices rose sharply. The birr lost purchasing power. Imported goods became more expensive. Food prices strained households. Rents rose faster than many incomes. Transport costs climbed. Families adjusted, then adjusted again, until adjustment itself became a way of life.
When inflation begins to decline after such a period, it is tempting for officials to declare progress. They are not entirely wrong. Reducing inflation matters. No country can build a stable economy while prices rise unpredictably. Inflation destroys savings, discourages investment, weakens trust in money and punishes the poor most severely. But reducing inflation is not the same as reducing hardship.
Imagine a household whose monthly food bill doubled over several years. If prices then rise by only five percent instead of 30 percent, economists may celebrate lower inflation. But the household is still paying more than before. Its salary may not have doubled. Its savings may already be gone. Its diet may already have deteriorated. Its debts may already have grown. Its sense of security may already have collapsed.
This is why people often distrust official economic optimism. They are not necessarily rejecting the numbers. They are saying the numbers do not yet describe their lives. The problem is not only inflation. It is purchasing power.
A country can stabilise prices and still leave citizens poorer if wages do not recover. A government can reduce inflation and still fail families if food remains unaffordable. A central bank can tighten policy and still miss the deeper crisis if rents, health costs and education costs remain beyond reach.
For the poor, the cost of living is not spread evenly across a basket of goods. It is concentrated in essentials. Food dominates. Rent dominates. Transport dominates. Medicine dominates. School costs dominate. When these rise, households do not make elegant substitutions. They sacrifice.
They eat less protein. They delay treatment. They move to cheaper housing. They borrow from relatives. They reduce social obligations. They postpone weddings. They pull children from better schools. They stop saving. They survive, but survival should not be mistaken for resilience. This is where inequality enters the inflation story.
Inflation is often discussed as if it affects everyone equally. It does not. Those with assets are protected. Those with access to foreign currency are protected. Property owners can raise rent. Traders may pass costs to consumers. Businesses with pricing power can adjust. Families receiving remittances may be cushioned.
But salaried workers, pensioners, the unemployed and the urban poor cannot pass the cost to anyone. They absorb it.
Inflation is therefore not merely a monetary problem. It is a distributional problem. It reallocates pain toward those least able to bear it. It turns weak bargaining power into hunger. It turns fixed income into declining income. It turns the birr into a source of anxiety. This is why the distinction between inflation and cost of living should guide policy.
If policymakers focus only on inflation, they may conclude that the crisis is easing once the headline number falls. If they focus on the cost of living, they will ask harder questions. Are wages recovering? Is food affordable? Are rents stabilising? Can poor households buy medicine? Are school costs manageable? Can small businesses survive? Can families save again? Are people rebuilding buffers, or merely falling more slowly? These are not soft questions. They are macroeconomic questions.
An economy is not stable simply because inflation is lower. It is stable when people trust that work can support life. It is stable when the currency is not feared. It is stable when households can plan beyond the next market day. It is stable when prices, wages and public services move in a way that protects dignity. Ethiopia’s inflation problem has also exposed a deeper structural weakness: food systems remain too fragile.
In a country where food takes a large share of household spending, agriculture is anti-inflation policy. Irrigation is anti-inflation policy. Storage is anti-inflation policy. Rural roads are anti-inflation policy. Peace along trade routes is anti-inflation policy. Fertiliser availability is anti-inflation policy. Competition in wholesale markets is anti-inflation policy. Climate resilience is anti-inflation policy.
Central banks can manage liquidity. They cannot produce onions. They cannot repair rural roads. They cannot end conflict. They cannot make rainfall reliable. They cannot stop traders from exploiting scarcity if markets are weak. Monetary policy is necessary, but in Ethiopia it is not sufficient. The cost of living is built in the real economy.
It is built in farms, roads, warehouses, ports, foreign exchange markets, tax systems, schools, hospitals and rental markets. It is shaped by whether farmers can produce more, whether trucks can move safely, whether importers can access foreign currency, whether markets are competitive, whether public spending is disciplined, and whether wages reflect productivity.
This is why stabilisation must not become a narrow technocratic project. Ethiopia needs macroeconomic discipline, yes. But discipline without protection can become cruelty. Reform without social cushioning can turn into backlash. Price stability without income recovery can become a statistical success and a social failure. The correct policy question is not simply: how do we bring inflation down? It is: how do we make life affordable again? That requires at least five shifts.
First, wage and income recovery must become part of the economic debate. Lower inflation is not enough if real incomes remain depressed.
Second, food affordability must be treated as a national economic priority, not only an agricultural issue.
Third, social protection must be adaptive. When prices rise, support for vulnerable households should expand quickly, not after damage has already been done.
Fourth, housing and rent pressure must be taken seriously. Urban cost-of-living crises are often driven as much by rent as by food.
Fifth, public communication must be honest. Governments should not tell citizens that life is improving merely because inflation has slowed. They should say: the fire is being contained, but rebuilding will take time.
That honesty matters because economic legitimacy depends on lived reality. People can accept difficult reform if they believe the burden is shared, the goal is credible and relief is visible. They will reject reform if they are told to celebrate numbers that do not match their kitchens.
Ethiopia’s challenge, then, is not only to defeat inflation. It is to repair purchasing power, rebuild trust in the birr, protect the vulnerable and create an economy in which growth is felt at the household level. A lower inflation rate is a beginning. It is not the destination.
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Samson Berhane is an economics graduate with expertise in business and economic reporting and communications. He can be reached at [email protected]. The views expressed in this article are his own and do not represent the opinions of the institutions he is affiliated with nor that of the magazine.
