Inflation in Dominican Republic

Dominican Republic - Inflation

Inflation continues to ease in January

Consumer prices fell 0.17% in January over the prior month, following December’s 0.22% month-on-month decline. According to the Central Bank, January’s fall was driven by lower transport and housing costs, on the back of lower airfare and fuel prices. This more than offset increases to prices for food and non-alcoholic beverages.

Inflation continued to ebb from 1.2% in December to 0.7% in January, falling 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 at 2.4%, only down marginally from December’s 2.5%.

At its 28 February 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, weaker price pressures have been chiefly driven by volatility in international oil prices, and the Bank is still projecting inflation to gradually converge to the target range in 2020. Moreover, economic activity remains above potential, with robust credit growth fueling investment and household spending. 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, U.S. interest rates and global financial conditions.

FocusEconomics Consensus Forecast participants expect inflation to end 2019 at 3.8%, which is down 0.3 percentage points from last month’s estimate. The panel projects inflation to end 2020 at 3.6%. Our panel currently sees the Central Bank’s main policy rate ending 2019 at 5.83% and 2020 at 5.38%.