Inflation falls due to energy price freezes and tighter monetary policy

DOMINICAN REPUBLIC - Report 14 Jun 2022 by Magdalena Lizardo

After a strong 1% rise in April, monthly inflation fell 0.5% in May, one of its lowest levels since September 2020. But there was no free lunch: the Dominican government has maintained its fuel subsidy plan during the first five months of 2022, thereby providing a subsidy of $318.4 million to minimize the increase in fuel prices and their direct impact on national price levels. Fuel prices have been frozen since March 5th.

The Central Bank has also continued to tighten monetary policy, deciding on May 31st to levy a 100 bp increase in the annual monetary policy rate, on top of the 250 bp increase imposed since November 2021.

But with accumulated growth of 5.8% above the potential level, the growth rate of economic activity slowed down in April, and was up 4.7% from the same month of 2021.

May was a politically difficult month. In addition to the inflationary situation, in the past few weeks large parts of the country experienced electricity blackouts and, as a dire warning, public discontents and protests erupted. This situation creates fertile ground to intensify the proselytizing of political parties, particularly from the opposition party PLD, led by former president Danilo Medina, and the People's Force, led by former president Leonel Fernández.

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