ET's inflation rate YoY for December 2025 registered at 9.7%, released on January 9, 2026, marking a significant decline from November's 10.9% and well below the market consensus of 10.5%. This reading continues a downward trajectory from the peak inflation levels seen in mid-2025, where rates hovered above 13.5%. The easing inflation reflects a combination of tighter monetary policy, fiscal consolidation, and moderating external price pressures.

Drivers this month

• Energy prices stabilized after sharp rises earlier in 2025.
• Food inflation slowed due to improved harvests and supply chain normalization.
• Core inflation components, such as housing and transportation, showed moderate increases.

Policy pulse

The current inflation rate remains above the central bank’s target range of 5-7%, but the downward trend supports the recent monetary tightening cycle. The National Bank of ET’s interest rate hikes since mid-2025 appear to be moderating demand-driven inflation pressures.

Market lens

In the first hour post-release, the ETB currency appreciated modestly against the USD, while 2-year government bond yields declined by 15 basis points, reflecting eased inflation risk premia. Inflation breakeven rates also adjusted downward, signaling market confidence in the disinflation trend.

Examining core macroeconomic indicators alongside inflation provides a fuller picture of ET’s economic health. GDP growth for Q4 2025 is estimated at 3.2%, slightly below the 3.5% pace in Q3, indicating moderate economic cooling. Unemployment remains steady at 7.8%, with labor market slack limiting wage-driven inflation pressures.

Monetary Policy & Financial Conditions

The National Bank of ET raised its policy rate by 75 basis points cumulatively since June 2025, aiming to anchor inflation expectations. Credit growth has slowed to 6.4% YoY from 8.1% six months prior, reflecting tighter financial conditions. Liquidity measures indicate a cautious banking sector, with lending standards tightening.

Fiscal Policy & Government Budget

Fiscal consolidation efforts have reduced the budget deficit to 3.8% of GDP in 2025, down from 5.1% in 2024. Government spending cuts and improved tax collection have helped ease inflationary pressures by limiting excess demand.

External Shocks & Geopolitical Risks

ET remains exposed to global commodity price volatility and regional geopolitical tensions. Recent stabilization in oil prices and grain markets has helped ease imported inflation. However, ongoing border disputes and trade uncertainties pose downside risks to inflation stability.

Market lens

Immediate reaction: ETB/USD strengthened 0.3% within the first hour, while 2-year government bond yields fell 15 basis points, reflecting reduced inflation risk.

Looking ahead, inflation in ET is likely to continue its downward path, but risks remain. We outline three scenarios:

Bullish Scenario (30% probability)

• Continued disinflation driven by sustained monetary tightening and fiscal discipline.
• Stable global commodity prices and easing geopolitical tensions.
• Inflation falls below 7% by mid-2026, enabling policy rate cuts.

Base Scenario (50% probability)

• Moderate inflation decline to 8-9% by mid-2026.
• Monetary policy remains restrictive but flexible.
• External shocks cause temporary price volatility but no sustained inflation spikes.

Bearish Scenario (20% probability)

• Resurgence of inflation above 11% due to supply chain disruptions or geopolitical flare-ups.
• Fiscal slippage or monetary policy missteps undermine disinflation efforts.
• Currency depreciation pressures imported inflation higher.

Structural & Long-Run Trends

ET’s inflation dynamics reflect structural challenges including supply bottlenecks, limited diversification, and fiscal constraints. Long-run inflation targeting will require reforms to improve productivity, enhance monetary policy credibility, and reduce external vulnerabilities.

December 2025’s inflation rate of 9.7% signals meaningful progress in ET’s battle against high inflation. The data from the Sigmanomics database confirms a sustained easing trend from the mid-2025 peak of 14.4%. While the macroeconomic backdrop remains complex, the combination of tighter monetary policy, fiscal consolidation, and stabilizing external conditions supports a cautiously optimistic outlook.

Policymakers must remain vigilant to external shocks and domestic structural issues that could derail disinflation. Financial markets have responded positively to the latest print, but volatility may persist as investors weigh risks. Ultimately, ET’s inflation trajectory will hinge on the interplay of policy effectiveness and global economic developments.

Key Markets Likely to React to Inflation Rate YoY

Inflation data in ET typically influences several key markets, including currency pairs, government bonds, and equities sensitive to inflation expectations. The following symbols historically track inflation trends closely and are expected to react to the December 2025 print:

• ETBUSD – The ET birr’s exchange rate against the USD reflects inflation-driven currency valuation changes.
• ETBANK – Banking sector stocks are sensitive to interest rate changes driven by inflation.
• EURUSD – Global risk sentiment and inflation expectations impact this major currency pair.
• BTCUSD – Bitcoin often reacts to inflation data as an alternative inflation hedge.
• ETCONS – Consumer goods stocks reflect inflation’s impact on purchasing power and demand.

FAQs

What does the December 2025 inflation rate indicate for ET’s economy?

The 9.7% inflation rate suggests easing price pressures but remains above the central bank’s target, indicating ongoing challenges.

How does this inflation reading affect monetary policy?

The decline supports the effectiveness of recent rate hikes but suggests cautious monitoring before policy easing.

What are the main risks to inflation going forward?

Risks include external shocks, geopolitical tensions, and potential fiscal slippages that could reignite inflation.

Takeaway: ET’s December 2025 inflation print confirms a positive disinflation trend, but vigilance is essential amid persistent risks.

This has been drafted with AI assistance and then thoroughly reviewed, refined, and approved by our human editorial team to ensure accuracy, and originality.

Updated 1/9/26