Impact of food inflation on household welfare in Ethiopia

The study examines the welfare effects of food inflation in Ethiopia using the last two waves of the Ethiopian Socioeconomic Panel Survey and a difference-in-difference framework. Household specific exposure to food infaltion is measured using Laspeyres price indices constrcted from obserevd consumption baskets. The results show that food inflation significantly reduces real household consumption, with the effects concentrated in urban areas. Households exposed to above-median food price inflation between 2019 and 2022 experienced substantial decline in real per adult-equivalent consumption, while the effects in rural areas were comparativley limited. The effects are also uneven across the welfare distribution. In urban areas, consumption losses are concentrated among households in the bottom 40 percent in urban areas, whereas higher-income households are largely insulated from rising food prices. Food inflation further increases the likelihood of experiencing both consumption poverty and multidimensional deprivation among vulnerable urban households. The findings suggest that recent food price increases have disproportionately affected poorer households highlighting the importance of reforming food policy to counterbalance the effect of food price shocks.