Household-Level Consumption in Urban Ethiopia: The Impact of Food Price Inflation and Idiosyncratic Shocks

We use survey data to investigate how urban households in Ethiopia coped with the food price shock in 2008 and idiosyncratic shocks. Qualitative data indicate that the high food price inflation was by far the most adverse economic shock between 2004 and 2008, and that a significant proportion of households had to adjust food consumption in response. Regression results indicate that households with low asset levels, and casual workers, were particularly adversely affected by high food prices. In contrast, we find that household demographics and education matter little for the impact of the shock. Our analysis of idiosyncratic shocks indicates that losing one’s job is a serious, uninsurable shock. We interpret the results as pointing to the importance of growth in the formal sector so as to generate more well-paid and stable jobs. Our results also imply that aid programs responding to food price shocks can be made more efficient by targeting low-asset households with members on the fringe of the labor market. JEL classification: O12, O18, D12.