Ethiopia’s Inflation Is Forecast to Fall Below 10% in 2026/27, AfDB Says

November 7, 2026 | By Semahegn Nigatu

Ethiopia’s inflation rate is projected to fall to single digits in 2026/27, as monetary tightening and economic reforms gradually ease price pressures, according to the African Development Bank (AfDB), although persistent supply constraints and external shocks threaten to complicate the disinflation process.

The Bank forecasts that inflation will decline to 8.7 percent in 2026/27, from an estimated 14.7 percent in 2025/26, in its Country Focus Report 2026: Ethiopia, published as part of its assessment of the country's economic performance and development financing requirements.

The projection would mark a significant shift for an economy that experienced inflation of 33.8 percent in 2022/23 and 26.6 percent in 2023/24. Inflation subsequently fell to 15.8 percent in 2024/25, according to the report's macroeconomic indicators.

The expected decline follows the introduction of an interest-rate-based monetary policy framework and a floating exchange-rate regime in August 2024, replacing the previous monetary aggregate-targeting system. The transition formed part of the government's Home-Grown Economic Reform programme, aimed at addressing persistent macroeconomic imbalances.

The AfDB attributes the earlier decline in inflation partly to monetary restraint, easing food prices, particularly staple commodities, and measures limiting credit expansion.

However, the NBE's latest assessment indicates that the path towards single-digit inflation remains uncertain, with external supply disruptions and domestic price pressures continuing to weigh on the outlook.

Briefing reporters during the eighth Monetary Policy Committee meeting on November 3, its governor Eyon Tekalign (PhD) said headline inflation had started easing from its supply-driven peak but remained significantly above its medium-term single-digit target, standing at 14.9 percent in September 2026. The central bank expects inflation to continue declining but remain in double digits over the next six months.

The AfDB identifies external commodity-price volatility, particularly energy costs associated with the Middle East conflict, as a significant downside risk to its economic outlook.

Ethiopia's exposure is substantial. The country imports nearly all its fuel and more than 90 percent of its nitrogen fertiliser from Gulf states. More than 90 percent of its international trade also passes through Djibouti, leaving imports vulnerable to disruptions along the Red Sea and Bab el-Mandeb shipping corridor.

Higher oil prices can feed into domestic inflation through transport, logistics, manufacturing and agricultural production costs. Fertiliser shortages or higher import prices could also affect agricultural output and food prices.

The report estimates that a major increase in international oil prices could raise inflation by around three percentage points, while significantly increasing the import bill.

A prolonged escalation of the Middle East conflict could therefore weaken the expected decline in inflation, deplete foreign-exchange reserves and reverse some of the macroeconomic improvements achieved through recent reforms.

Domestic supply constraints present another challenge. The AfDB argues that addressing structural bottlenecks, improving trade logistics and expanding productive capacity will be necessary to make the disinflation process sustainable.

Source: FSX Business News