The recent sharp devaluation by the central bank aggravates the inflation rate from singlerninflation rate of 5.3% in August 20 I 0 to 10.6% in October 20 I 0 following only a monthrnafter the devaluation occurred and 40.1 % in September 20 II after a year. Initiated fromrnthis fact, this paper investigates the exchange rate pass-through to inflation and otherrnmacroeconomic variables in Ethiopia for monthly data ranging from July 2002(thernbeginning of Ethiopian fiscal year 2002/03) to June 201 I (the end of Ethiopian fiscal yearrn2010111). The study apply Six-Variable unrestricted VAR model to estimate the impulsernresponse functions (IRFs) and variance decompositions (VDCs). In order to measure thernpass-through coefficient to CPI, the study applies standardization of the exchange raternshock which helps to transform the shock from one standard Deviation to one percent.rnHence the result shows that, on average a percentage chan ge in exchange rate willrnincrease the consumer price by 4.75% percent in the first year. The exchange rate passthroughrnto inflation almost dies out after two years of the exchange rate shock. The resultrnalso suppoli Taylor's hypothesis which states that: high inflation leads to high level ofrnexchange rate pass-through. Hence, the study concludes that, exchange rate change hasrnprominent effect on Ethiopian inflation environment.