Inflation in Dominican Republic

Dominican Republic - Inflation

Inflation picks up in July; Central Bank cuts rates for third straight meeting

Consumer prices rose 0.47% in July over the prior month, contrasting June’s 0.18% fall. According to the Central Bank, July’s rise was largely on the back of higher food prices.

Inflation rose from 0.9% in June to 1.4% in July, 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—inched up to 2.0%, from June’s 1.9%. Softer economic momentum and low oil prices have played an important role in keeping inflation muted so far this year.

At its 30 August monetary policy meeting, the Central Bank (BCRD) cut the policy rate from 4.75% to 4.50%, marking the third consecutive rate cut and taking total easing in recent months to 100 basis points. The Bank’s decision to further loosen its stance came as inflation remained below the target range for the ninth straight month in July, with core inflation also mild. Moreover, external downside risks to growth have risen with the escalation of the U.S.-China trade war.

In its communiqué, the Bank maintained its dovish stance, highlighting it would be alert to “moderating global economic activity as well as internal and external uncertainty, and the impact on demand”. This suggests further loosening is possible in the coming months, particularly if inflation does not pick up substantially and the economy loses further steam.

Last month, FocusEconomics Consensus Forecast participants expected inflation to end 2019 at 3.3%. The panel projected inflation to end 2020 at 3.6%. Our panelists saw the policy rate ending 2019 at 5.00% and 2020 at 4.75%. A new Consensus Forecast will be published on 10 September, and both inflation and policy rate forecasts for 2019 are likely to be revised down.