Dominican Republic: Inflation picks up in February
March 13, 2019
Consumer prices rose 0.37% in February over the prior month, contrasting January’s 0.17% decline. According to the Central Bank, February’s rise was driven largely by higher food, transport and housing costs. This more than offset a further fall in clothing prices.
Inflation rose from 0.7% in January to 1.2% in February amid an uptick in global oil prices, but remained below the Central Bank’s inflation target range of 3.0%-5.0%. Core inflation—which excludes volatile items such as certain types of food, fuel and administered prices—was significantly higher at 2.3%, down marginally from January’s 2.4%.
At its 29 March monetary policy meeting, the Central Bank kept its policy rate at 5.50%. The Bank’s decision came despite below-target inflation in recent months. However, the Bank still expects inflation to gradually converge to the target range over the next two years. Moreover, economic activity remains above potential, with robust credit growth fueling investment and household spending, and the exchange rate has been fairly stable thanks to inflows of remittances and FDI. As a result, the Bank was not compelled 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 international oil prices, global financial conditions and extreme weather events. However, unlike at its previous meeting, the Bank did not mention monetary normalization in the U.S. as a factor to watch. The U.S. Federal Reserve is now expected to leave rates unchanged throughout 2019, which will reduce the need for the Central Bank to raise rates.
Author: Oliver Reynolds, Economist