Traditional economic theories like keynesianism and monetarism ascribed inflationrnbasically to be a demand side phenomenon. This arises from their basic premeses thatrnthere are well-developed and integrated product, labour and financial markets. Policyrnvariables such as interest rates, exchange rates, and money supply could, therefore, berneffectively employed to influence policy targets. For keynesians inflation is 'rndisequillibrium in the product market due to the optimistic behavior of investors orrngovernment to spend beyond the full employment level. For monetarists, on the other rnhand, inflation arises due to a disequilibruim in the money market when the moneyrnsupply goes beyond the demand for it. The Phillips Curve which basis itself on theserntheories is, therefore, a demand side theory.rnThings are, however, different in Ethiopia Production is predominately agrarian.rnMarkets are fragmented and underdeveloped. Productivity is low. And, production isrnconstrained by structural rigidities. Internal and external shocks subjected the supplyrncurve to a repeated contraction. The actual production function is, therefore, well belowrnthe potential (steady state) level. Removing structural rigidities, and creating wellrnfunctioning and integrated markets is urgent to eliminate supply bottlenecks. Each steprnto remove the bottlenecks is expected to produce a continuous rightward shift in thernaggregate supply curve. This means that when unemployment declines inflation alsorndeclines. The Phillips Curve is, therefore, positive. This is what is evident in Ethiopia.rnHowever, when an efficient market system is established and resources begin to bernexposed to a competitive market system, money will finish its business as a producerrngood and inflation begins to be 'a demand side phenomenon.