Dominican Republic: Inflation jumps in August
September 11, 2017
Consumer prices increased 0.57% in August compared to the previous month, which was above July’s 0.18% month-on-month increase. According to the Central Bank, August’s print was primarily driven by higher prices for housing and transport, and to a lesser extent higher food and non-alcoholic beverage prices.
Inflation in August came in at 3.2%, which was above the previous month’s reading of 2.5% and the highest figure since April. August’s print marked a return for inflation to the Central Bank’s target range of 3.0%–5.0%. Meanwhile, annual average inflation in August was higher than July’s 2.2%, landing at an over two-year high of 2.4%. In line with FocusEconomics panelists’ forecast, the Central Bank foresees inflation remaining within the target range for the remainder of this year.
The Bank stood pat at its 31 August meeting. Against an earlier backdrop of decelerating inflation, the Central Bank had opted to lower its main policy rate by 50 basis points at its 31 July meeting. With the decision, the Central Bank attempted to anchor inflation expectations within the 3.0%–5.0% tolerance band. Authorities were worried that weaker-than-expected oil prices, along with the current string of soft inflation readings and growing skepticism regarding the U.S. Federal Reserve’s current tightening path, could weigh on inflation expectations moving forward.
In addition to the rate hike, the Bank had adopted new measures in late July that granted close to USD 500 million in loans to the private sector. The move is expected to shore up economic activity in some sectors, as well as boost price pressures. Leading data suggest that, ever since these measures were taken, credit growth to small- and medium-sized enterprises and households has leaped. Coupled with a more accommodative stance, this is likely to bring inflation back above the Central Bank’s target range before year-end.
Author: Christopher Thomas, Economist