Research Proposal
Research Proposal
EFFECTS OF INFLATION
ON THE
LOW-INCOME SOCIETY OF
ADDIS ABABA CITY ADMINISTRATION
PREPARED BY: -
Tizita Masresha
ACKNOWLEDGMENT
First and foremost, we would like to thank God Almighty for giving us the strength, knowledge, ability and
opportunity to undertake this RESEARCH PROPOSAL and to persevere and complete it satisfactorily. Without
his blessings, this achievement would have not been possible.
Secondly, it is our pleasure to express our special thanks of gratitude to our advisor Solomon Damtew; in his
lecture of the course RESEARCH METHODS IN FINANCE AND ACCOUNTING, he made us to give an
intrigue attention and commitment. He equipped us with the necessary knowledges and skills to perform this
research as well as a main research in the future. He is one of amongst instructors whom we are proudest of to
learn from. He gave us his knowledge and skills without any reservation. Thanks to Mr. Solomon for being
with us from the starting to the end of this proposal and guiding us to know about so many new things in the
course of finalizing this golden opportunity.
Thirdly, we would also like to thank each other for the commitments and endeavors depicted, and library
workers who helped us a lot in winding up this proposal within the limited time frame.
LIST OF FIGURES
Figure-1: Administrative map of Addis Ababa City------------------------------------------------------- IX
Figure-2: An increase in inflation in Ethiopia ------------------------------------------------------------ 4
LIST OF TABLES
Table-1: Percentage composition of the study ---------------------------------------------------------------------- 6
Table-2: GDP Growth and Inflation, in percent -------------------------------------------------------------------- 9
Table-3: Time management plan ------------------------------------------------------------------------------------ 12
Table-4: Research proposal budget plan --------------------------------------------------------------------------- 13
TABLE OF CONTENTS
CONTENTS PAGE
ACKNOWLEDGEMENT ------------------------------------------------------------------- II
LIST OF FIGURES --------------------------------------------------------------------------- III
LIST OF TABLES ---------------------------------------------------------------------------- IV
TABLE OF CONTENTS -------------------------------------------------------------------- V-VI
ACRONYMS ---------------------------------------------------------------------------------- VII
ABSTRACT ----------------------------------------------------------------------------------- VIII-IX
CHAPTER ONE
1. INTRODUCTION -------------------------------------------------------------------- 1-6
1.1 Background of the study --------------------------------------------------------- 1
1.2 Statement of the problem -------------------------------------------------------- 1-2
1.3 Research questions --------------------------------------------------------------- 2
1.4 Objectives of the research ------------------------------------------------------- 3
1.4.1 General objective -----------------------------------------------------------3
1.4.2 Specific objectives --------------------------------------------------------- 3
1.5 Research hypothesis -------------------------------------------------------------- 3
1.6 Significance of the study --------------------------------------------------------- 3-4
1.7 Scope and limitations of the study ---------------------------------------------- 4-5
1.8 Definition of key terms ---------------------------------------------------------- 5-6
1.9 Organization of the study proposal --------------------------------------------- 6
CHAPTER TWO
2. LITERATURE REVIEW ------------------------------------------------------------ 7-9
2.1 Definition of inflation ------------------------------------------------------------ 7
2.2 Causes of inflation ---------------------------------------------------------------- 7-8
2.3 Effects of inflation ---------------------------------------------------------------- 8
2.4 The status of inflation in Ethiopia ---------------------------------------------- 8-9
2.5 Summary of the literature review ----------------------------------------------- 9
CHAPTER THREE
3. RESEARCH METHODOLOGY ---------------------------------------------------- 10-11
3.1 Study design ----------------------------------------------------------------------- 10
ACRONYMS
AA – Addis Ababa
CSA – Central Statistics Agency
EBT – Ethiopian Birr
EMDE – Emerging Market and Developing Economy
ERS – European Research Studies
FDI – Foreign Direct Investment
IMF – International Monetary Fund
LIC – Low-income
SRS – Simple Random Sampling
US – United States
WB – World Bank
TRN – Table of Random Numbers
ABSTRACT
Now a days, inflation has become one of the sensitive issues of people around the world. It is affecting
people in different ways. Here, people in Addis Ababa, especially the low-income society, are affected
highly by the inflation that was increasing aggravatingly, day by day. We chose the problem entitled
“Effects of Inflation on the Low-income Society of AA City Administration” because it was the basic
factor that most of the issues concerning the living standards of that part of society were highly integrated
into.
This proposal was aimed at identifying the effects of inflation for the low-income society and proposes
some of the possible solutions to alleviate or at least minimize the situation. In addition, it could be an
input for people or organizations who are highly concerned to learn about the effects of inflation as well as
for officials who are working in setting policies in that regard.
We hope that this research proposal is different from those which have been done before because we were
trying to identify and propose possible solutions to a situation in which inflation is increasing from day-to-
day. We are still facing the same problem, currently here in AA. Additionally, we are working on the up-
to-date situation where people even with a better income are complaining about the inflation that they are
always experiencing in their daily routine. It was increasing in a way that the change is significantly seen
by everyone from the day next than the day before.
As we tried to mention above, the objectives of this proposal are to know and understand the effects of
inflation on the low-income society of AA. Furthermore, by the end of this research we will be able to:
(Source:https://www.facebook.com/RealEstate40.60HousingProjectsAddisAbaba20.80/photos/a.61958251
8153663/3220102468101642/)
We expect that the methodologies, designs, and their implementations in the research will bring us a
positive outcome, undoubtedly.
CHAPTER ONE
1. INTRODUCTION
1.1 Background of the study
As inflation is all about the decline of purchasing power of a given currency over time (Fernando J, 2021),
it is a threat to good economic performance in Ethiopia too; and it has negative effects on many of the
poor society of Addis Ababa. Similarly, many low-income countries are still experiencing high inflation,
large trade deficits, and an unstable macroeconomic environment (Loening L. J, Durevall D., and Birru
Y., June 2009). As the IMF has stated in 2008, one of the most affected countries is Ethiopia, which has
had the strongest acceleration in food price inflation during recent years (IMF, 2008a).
According to Loening L. J, Durevall D., and Birru Y., June 2009, Ethiopia has not suffered from high
inflation, historically. Annual average inflation was only 5.2 percent 1980/81-2003/04, and major
inflationary episodes have occurred only during conflict and drought. Annual average inflation reached a
record of 18.2 percent during the 1984/85 drought, 21.1 percent in 1991/92 at the peak of the war with
Eritrea, and again 15.5 percent during the 2003 drought.
A study which has been done recently, in 2020, shows that the inflation rate for Ethiopia was 20.4 %.
Though Ethiopia's inflation rate fluctuated substantially in recent years, it tended to increase through
2001-2020 period ending at 20.4 % in 2020. (www.knoema.com/atlas/Ethiopia/Inflation-rate)
As the issue is getting worse, we formulate this proposal so as to know and understand the effects of
inflation on the low-income society of AA and the study will be done on the low-income society of the
city, specifically. The sampling will consider low-income people in the Kifle Ketema’s, especially Bole,
Yeka, and Lemi Kura.
We are highly motivated to work on this study that is primarily focused on identifying the effects of
inflation in the specified study area along with indicating, evaluating, assessing, and suggesting possible
solutions for the problem because of the current situation in which everybody is facing the problem of
inflation, especially the low-income society of the city.
This paper will also took those assumptions into considerations and used them as a reference to see what
will really happen in the AA city administration’s case concerning the effects of inflation on low-income
society, currently and possibly for the future. Therefore, the paper will be done to show those effects and
suggest possible solutions, cost-effectively.
Of course, different studies have shown that there are various causes, effects, and responsible bodies about
inflation, which are summarized into three main factors that are: i) the supply and demand for real money
balances, ii) the effects of external (foreign) inflation on domestic prices, and iii) internal supply shocks in
the agricultural sector. (Durevall D. and Sjo Bo, Aug., 2012). But, we think that those studies haven’t yet
solved the problem, meaning the situation is still worsening because of different reasons.
Despite different stakeholders having done a lot toward the minimization of the effects of inflation, the
outcomes were not as much as intended. This could still lead to further investigations to be made,
dynamically. As an academician and part of the society, which foreseen the problem at a macro level, it is
our duty to put the bricks in the filling of the loophole about inflation.
The impacts of inflation on our target population, the low-income society of AA administration, are very
great. It affects the society alarmingly. Even to the extent that they couldn’t shoulder it.
This research proposal will be done with the involvement of the whole participants of the group who were
assigned to work on it. Additionally, we will carry it out with the collaboration of the Central Statistics
Agency of Ethiopia (CSA), Bole Kifle Ketema, Yeka Kifle Ketema, Lemi Kura Kifle Ketema, and other
responsible bodies.
The brainstorming, identifying and presenting the title for approval, developing the proposal, identifying
elicitation requirements, designing, implementing, testing, and finalizing this research will take almost
four months and we hope that the final outcome of this research will benefit the targeted population and
different organizations who are working on humanitarian, governmental, volunteering, and others for their
further operations.
As it has been mentioned, the situation is getting worse from time to time and day-to-day. Therefore, the
stakeholders should play their lion role in the processes/practices of handling it before it reaches a
devastating stage. We really want to emphasize these aspects if not survival of those parts of the society of
the AA city administration would be under a question mark. Thus, identifying, studying, and suggesting
possible solutions concerning the effects of inflation on the low-income society of AA city administration
are mandatory.
1. What are the effects of inflation and to what extent does it affect the living standard of the low-
income society of the AA city administration?
2. How severe is the inflation in the AA city administration?
3. What are the significant causes of inflation in the AA city administration?
4. What does the effectiveness of stakeholders concerning the controlling of the current and future
situation of inflation in the AA city administration look like?
5. What possible solution could there be to minimize/alleviate the problem, in the case of the AA city
administration?
First and foremost, we are the beneficiaries of undergoing this study. Because it is a very nice opportunity
to change our theoretical knowledge and skills, we gather from our lessons, into practical aspects. The
study has made us to share ideas, read and dig for further information concerning inflation. Furthermore, it
helped us to see things critically and in advance.
There are numbers of extrinsic beneficiaries of this study: from laymen up to researchers; from students
up to professionals; from parents up to concerned individuals; from non-governmental up to governmental
institutions; and other stakeholders.
Generally, this study has either direct or indirect educational, social, theoretical, cultural, and other
significances.
In AA the situation is vivid; people are suffering from the unstoppable inflation that is aggravatingly
increasing each day. Therefore, we do hope that our study contributes at least something towards the
commitments in decreasing it.
Though our study is restricted to the low-income society of AA at the current situation, i.e., the year
2020/21, because of time and finance, it needs a country as well as worldwide study.
This study focuses on the low-income society, which is having commonly below and equal to the poverty
line that is most commonly used as a benchmark of getting US$ 1.90 per day, as the WB states on Sep.28,
2020, of AA city administration. It is more concerned with the effect of inflation, and besides, there are
some related issues such as causes, who the responsible bodies are, and to what extent they are working to
ACCOUNTING AND FINANCE DEPARTMENT Page 4
EFFECTS OF INFLATION ON THE LOW-INCOME SOCIETY OF ADDIS ABABA CITY ADMINISTRATION 2021
minimize the severity of the situation. These will be addressed. On the contrary, the study doesn’t focus
on a series of effects of inflation through consecutive years. In addition, since many studies are
undergoing, we assume, it makes getting an updated statistical data difficult, which are the limitations of
this study, including the time and finance issues.
CHAPTER TWO
2. LITERATURE REVIEW
We have divided the literature review into five sub-sections. The first section discusses the definition of
inflation. The next section is about the causes of inflation. Thirdly, we tried to discuss the effects of
inflation. Up next, Ethiopia’s inflation status has also been reviewed. Lastly, the literature review has also
tried to sum up the main points addressed.
Inflation (www.imf.org) is the rate of an increase in prices over a given period of time; and it measures
how much more expensive a set of goods and services has become over a certain period, usually a year.
The financial express supports this idea as if it is the rise of most goods and services of daily or common
use, such as food, clothing, housing etc. (www.financialexpress.com)
The cost of almost everything has gone up. This increase in the overall level of prices is called inflation.
(Mankiw, 2001)
As it has been mentioned, inflation is all about an increase in prices of goods and services in a given
period of time as compared to a relatively the same period, elapsed before. As Amadeo K. and J. Boyle M.
stated, there are four types of inflation: a) creeping or mild inflation, where prices rise 3% a year or less;
b) walking inflation, where inflation is between 3-10% a year; c) galloping inflation, where inflation rises
to 10% or more a year; and d) hyperinflation, where prices skyrocket more than 50% a month (April 29,
2021). These approaches of defining inflation have made its understanding as an increase in prices of
goods and services by many.
Different researchers have also made investigations concerning those sectors, either specifically or
generally. Some of them are shown as follows.
Agricultural markets can affect inflation both through the transmission of international food commodity
prices and through changes in domestic food supply and demand. (Josef L. Loening, Dick Durevall &
Yohannes A. Birru June 2009) Additionally, they said a poor harvest will tend to increase inflation in the
short term while depressing economic activity.
Inflation is also related to the choice of foreign exchange regime. (Durevall, Dick and Sjo Bo (Aug. 2012)
Sisay M. (August 31, 2008) also stated “Exchange rate devaluations have also found to have inflationary
impacts”. The same idea has been proposed as exchange rate pass-through to core inflation also appears to
be much larger for LICs than for the other country groups (Ha J., Ivanova A., Montiel P. & Pedroni P.
July 2019).
Inflation can be caused by excess/pull requests (liquidity/money/currency) occurs due to excessive total
demand which is usually triggered by a flood of liquidity in the market resulting in a high demand and
trigger changes in the price level. (Y. Yolanda, Journal Volume XX, 2017)
Even though scholars have depicted the causes of inflation from different angles, they are related to the
money sector, the external sector, the internal sector.
Based on the results of Easterly and Fischer (2001), the relationship between inflation and household
poverty by using the data of 38 countries is that inflation makes the poor worse off and that the poor suffer
more from inflation than the rich. Furthermore, Loening and Oseni (2008) provided evidence on the
welfare impacts of high food inflation on the rural population is somewhat inconclusive, but there is
evidence of a significant negative impact on the urban population.
According to Wodon and Zaman (2010), high commodity prices, particularly for food, have adverse
effects on poverty in countries with large fractions of net food buyers.
There is proven evidence that higher inflation begins to exert negative effects on economic growth at
significantly higher inflation rates in EMDEs than in advanced economies. (Ha J, Ivanova A., Montiel P.
& Pedroni P. July, 2019)
Generally, inflation increases uncertainty, which adversely affects the public’s ability to make the best
decision and causes distortion that affects the search intensity of individuals and the monopoly power of
firms. (Gebremeskel A., December 2020)
We assumed that one of the causes for the current Ethiopian inflationary conditions is the devaluation of
the Ethiopian birr against US dollars. There are assumptions that have been proved as the Birr (EBT) was
devalued by 16% against the US dollar in September 2010 to boost competitiveness. Later in 2010,
inflation started to rise again, and in 2011 the Ethiopian authorities sharpened the focus on monetary
targeting, adopting high-powered money as a nominal anchor (IMF, 2012c).
Durevall, Dick, and Sjo Bo (Aug. 2012) have also clearly stated that the economic growth took off in
2004, see table-1, in Ethiopia, but alongside higher growth, there has been rapid inflation and large
inflation volatility. Furthermore, they added information that inflation in Ethiopia has begun to rise
already in 2005, see table-2, and its rates are strongly correlated with food price inflation in Ethiopia.
Real GDP 5.9 7.4 1.6 -2.1 11.7 12.6 10.5 11.8 11.2 10.0 8.0 7.5
Ethiopia growth
Inflation 0.3 -11.4 -1.0 23.5 1.7 13.0 11.6 15.1 55.3 2.7 7.3 36.1
(Source: World Economic Outlook Database April 2012. Gross domestic product at constant prices,
change in percent. Annual inflation, in percent, is measured end-of-year.)
The housing shortages (L. L. Josef, Durevall D. & Birru Y. June 2009) in urban areas and speculation
have also affected inflation, where lack of regulation might have played a role in the surge in housing
prices, particularly in Addis Ababa.
CHAPTER THREE
3. RESEARCH METHODOLOGY
3.1 Study Design
In our course of study, the research will be done in AA city administration, specifically Bole, Yeka, and
Lemi Kura. As it has been mentioned above, the study focuses on the low-income, get below or equal to
an average of US $ 1.9 daily income, parts of societies of the city. They are required to give information
concerning how inflation is affecting their life. They are our target groups since we assume that inflation
is affecting them more than that of the better-incomed parts of people of the city, AA. We planned to
make the study in the year 2022, January 1 – April 30.
We will address them face-to-face and provide them with a survey questionnaire, which is prepared in
either in Amharic or English languages, in order to make understanding better according to their choice
and language of proficiency. Besides, for the convenience and understandability of the questionnaires, a
pre-test has also been made and slight modifications were also made within the course of activities.
The questions that are included within the questionnaire will be more of a scaling kind, and it has also
included some open-ended questions so that it will be possible for us to get their personal attitude towards
inflation and its related issues.
The study group will use an explanatory/casual research design, whereby it will be appropriate for the
study to show us the cause of inflation and its effects on the aforementioned society group. Here, we bear
in mind that the inquiry will be based on the strategy that involves both qualitative and quantitative, mixed
research approach, where the concurrent procedures will be followed. Furthermore, the cross-sectional
study design has been chosen for the research that we will study because of different reasons such as time,
money, and some other personal cases of the study members.
The sampling technique we chose to implement is the probability sampling technique. Among the
different probability sampling techniques, simple random sampling (SRS) will be used, specifically, which
will involve the use of a table of random numbers (TRN). Furthermore, the sample size will be determined
by the formula given below.
CHAPTER FOUR
6 Pen 7 10 70
REFERENCE
www.knoema.com/atlas/Ethiopia/Inflation-rate
https://goodcalculators.com/sample-size-calculator/
www.dummies.com/education/math/statistics/how-to-find-probabilities-for-z-with-the-z-table/
www.researchgate.net/figure/STRENGTHS-AND-WEAKNESSES-OF-SAMPLING-TECHNIQUES-
SOURCE-MALHOTRA-AND-BIRKS-2006_tbl1_319998246
www.facebook.com/RealEstate40.60HousingProjectsAddisAbaba20.80/photos/a.619582518153663/32201
02468101642/
www.investopedia.com/articles/insights/122016/9-common-effects-inflation.asp
www.slideshare.net/rohan2433/effect-of-inflation-on-household-budget
https://dictionary.cambridge.org/dictionary/english/
www.datapine.com/blog/data-analysis-methods-and-techniques/
Daniel WW (1999). Biostatistics: A Foundation for Analysis in the Health Sciences. 7th ed. New York:
John Wiley & Sons.
Durevall, Dick and Sjo Bo (Aug., 2012), The Dynamics of Inflation in Ethiopia and Kenya, Working
Paper Series No. 151, AFRICAN DEVELOPMENT BANK GROUP, Tunis, Tunisia. (5-
17)
Etefa A. (Aug. 3, 2011) The Inflation Dynamics of Ethiopia: Main Causes and Possible Solutions
Paperback (6-18)
Federal Democratic Republic of Ethiopia: 2008 Article IV Consultation Staff Report. IMF Country Report
08/264. (3-12)
Ha J., Ivanova A., Montiel P., & Pedroni P. (July 2019) Inflation in Low-Income Countries (2-23)
Kimberly Amadeo & Michael J Boyle, (April 29, 2021) Types of Inflation: The Four Most Critical Plus
Nine More
L. L. Josef, Durevall D., & Birru Y. (June 2009) Inflation Dynamics and Food Prices in an Agricultural
Economy: The Case of Ethiopia (2-42)
Loening, J. and G. Oseni. (original 2007, updated 2008) “Approximating Rural and Urban Welfare
Impacts of Food Price Inflation in Ethiopia.” Background paper for the Food Price
Inflation Policy Note. Washington DC: World Bank. Processed (5-13) Mankiw (2001)
macroeconomics 5th ed., (30-76)
Menji, Sisay (31 Aug. 2008) Determinants of Recent Inflation in Ethiopia (28)
Springer Link (Sep.28, 2020) Living income benchmarking of rural households in low-income countries
Wodon, Q. and H. Zaman. (2010) Higher Food Prices in Sub-Saharan Africa: Poverty Impact and Policy
Responses.‖ World Bank Research Observer 25(1): (157-176)
Y.Yolanda (2017) Analysis of Factors Affecting Inflation and its Impact on Human Development Index
and Poverty in Indonesia European Research Studies Journal Volume XX, Issue 4B (39-
50)
APPENDIXES
Appendix-I
Table-3: The z-table.
(Source: - https://www.dummies.com/education/math/statistics/how-to-find-probabilities-for-z-with-the-z-
table/)
ACCOUNTING AND FINANCE DEPARTMENT Page A
EFFECTS OF INFLATION ON THE LOW-INCOME SOCIETY OF ADDIS ABABA CITY ADMINISTRATION 2021
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Thank you!
አድማስ ዩኒቨርሲቲ
ቢዝነስ እና ኢኮኖሚክስ ፋካሊቲ
አካውንቲንግ እና ፋይናንስ ዲፓርትመንት
የጥናት መጠይቅ
አነስተኛ ገቢ ላላቸው የማህበረሰብ ክፍሎች የተዘጋጀ
ውድ መላሾቻችን
ይህ መጠይቅ የተዘጋጀው የዋጋ ግሽበት አነስተኛ ገቢ ባላቸው የአዲስ አበባ ነዋሪዎች ላይ ያለውን
ተጽዕኖ በተመለከተ መረጃ ለመሰብሰብ ነው፡፡ እርሶ የሚሰጡት ምላሽ ለወደፊት በሚዘጋጀው ጥናታዊ
ፅሁፍ ላይ የሚካተት ይሆናል፡፡ ይህም አላማው/ጠቀሜታው ለጥናጥና ለወደፊት ለሚደረጉ ማሻሻያዎች
የሚውል ነው፡፡ ስለሆነም ተገቢውን እና ትክክለናውን ምላሽ እንዲሰጡን ስንል በትህትና እንጠይቃለን፡፡
ተእዛዝ: ስም መጻፍ አይጠበቅቦትም፡፡ ምላሾን ከሚመረጧው አማራጮች ኋላ ባሉት
ክፍት ቦታዎች ላይ “” ምልክት በማስፈር ይመልሱ፡፡
ክፍል-1፡ ቃለ መጠይቅ የተደረገላቸው ግለሰብ ነባሪያዊ ሁኔታ
1. ጾታ: ወንድ ሴት
2. እድሜ: 18 – 30 31 – 40 41 – 50 51 – 60 ከ60 አመት በላይ
3. የትምህርት ደረጃ:
ያልተማረ የመጀመሪያ ደረጃ (1 – 8) ሁለተኛ ደረጃ (9 – 12)
ዲፕሎማ ዲግሪ እና ከዛ በላይ
4. የትዳር ሁኔታ:
ያላገባ/ች ባለ ትዳር የተፋታ/ች የትዳር አጋር በሞት ያጣ/ች
5. የቤተሰብ ብዛት
6. የስራ ሁኔታ፡ ቋሚ ጊዜያዊ
7. የመኖሪያ አካባቢ፡ ________________________
8. የገቢ መጠን፡ _____________________
ክፍል-2፡ ስለ ዋጋ ግሽበት
ተ.ቁ ጥያቄ አማራጮች
1 የዋጋ ግሽበት ምን እንደሆነ በጣም እስማማለሁ ገለልተኛ አልስማማም በጣም
እውቀቱ አለኝ እስማማለሁ አልስማማም
2 የዋጋ ግሽበትን መቆጣጠር በጣም እስማማለሁ ገለልተኛ አልስማማም በጣም
ይቻላል እስማማለሁ አልስማማም
3 ከቀደሞዉ በተለያዩ እቃዎች ና በጣም እስማማለሁ ገለልተኛ አልስማማም በጣም
አገልግሎቶች ላይ የዋጋ እስማማለሁ አልስማማም
መጨመር አለ
4 የዋጋ ግሽበት የምጣኔ ሀብት በጣም እስማማለሁ ገለልተኛ አልስማማም በጣም
ችግር ነው እስማማለሁ አልስማማም
*የዋጋ ግሽበት መቆጣጠር የሚችለዉ አካል ማን ነዉ?
_____________________, ____________________, ___________________,_________________
ከሚከተሉት ዕቃዎች ውስት የትኛው ነው በዋጋ ግሽበት በከፍተኛ ሁኔታ ተፀዕኖ የደረሰበት?
እናመሰግናለን!