Dominican Republic: Inflation falls sharply in December
January 8, 2019
Consumer prices fell 0.22% in December over the prior month, coming after November’s 0.35% month-on-month decline. According to the Central Bank, December’s fall was driven by lower transport and housing-related costs, on the back of the recent large fall in world oil prices.
Inflation tumbled from 2.4% in November to a multi-decade low of 1.2% in December, moving further below the midpoint of the Central Bank’s inflation target range of 3.0%–5.0%. However, core inflation—which excludes volatile items such as certain types of food, fuel and administered prices—was significantly higher, unchanged at 2.5%.
At its 31 December monetary policy meeting, the Central Bank kept its policy rate at 5.50%. The Bank’s decision came despite soft inflation readings in the final two months of the year, which were markedly below the lower bound of the Bank’s target range. However, low price pressures have been driven largely by the sudden drop in international oil prices, and the Bank stated that it expects inflation to move back towards the target range over the next year. Moreover, the economy continued to grow above potential through the close of 2018. As a result, the Bank didn’t feel the need to cut rates to support inflation.
In its communiqué, the Bank retained its neutral bias and gave no explicit guidance on the future direction of monetary policy. The Bank highlighted that it would pay particular attention to the evolution of the USD, international oil prices and the interest rate differential with the U.S. as the Fed pushes towards monetary normalization.
Author: Oliver Reynolds, Economist