Factors Affecting Households’ Inflation Expectations in Major Cities of Ethiopia

Abstract

This study explores inflation expectations of consumers in major Ethiopian cities, focusing on Addis Ababa and Adama, where rising prices significantly affect consumers’ purchasing power. Primary data were collected through a structured questionnaire from sample consumers within selected towns that were chosen based on population and cost of living. The study used simple random sampling to select respondents with access to marketplaces for Teff and onions, which are commonly, consumed food items. In the data analysis, the study employed econometric and descriptive statistics. The overall model was statistically significant, explaining 92.5% of the variability in the dependent variable. The linear regression model revealed that demographic and socioeconomic factors substantially affect consumers' inflation expectations, with sex and age showing no statistically significant effect on expectations. The model results show that households headed by secondary school graduates have a positive and significant effect on price rise expectations. Monthly incomes and home ownership of consumers have significant but negative effects on price rise expectations, while families with larger family sizes expect significant price rises. Participation in social capital mechanisms such as "Idir" significantly decreased expectations of price increments. To ensure stable household inflation expectations in Ethiopia, a comprehensive strategy addressing consumer awareness, income, and asset ownership is vital.