Dominican Republic: Inflation jumps on impact of tax reform
February 14, 2013
In January, consumer prices rose 1.26% over the previous month, which doubled the 0.63% increase seen in December. According to the Central Bank, the reading largely reflected the impact of a tax reform, which extended the base and increased the rates on a set of levies on consumer products and industrial goods. More specifically, higher prices for alcoholic beverages and tobacco as well as for recreation and culture drove the monthly increase.
As a result, annual headline inflation rose from 3.9% in December to 4.8% in January, marking the highest level seen in 10 months. Nevertheless, inflation still remains within the Central Bank's target of 5.0% with a 1.0 percentage point tolerance margin.
Meanwhile, at its 30 January meeting, the Central Bank left the monetary policy rate unchanged at 5.00%, following a similar decision in December. In addition, the Central Bank adopted a series of methodological changes regarding its monetary policy. The monetary policy rate (TPM) will be used as the reference rate both for overnight deposits and overnight lending. Previously, the Central Bank used the TPM as the rate paid on short-term deposits, whereas it used the so-called Lombard rate on its lending operations. In addition, the Bank opened two permanent facilities for deposit and lending with interest rates in a range of +/- 2.0 percentage points around the TPM.
Author: Armando Ciccarelli, Head of Data Solutions