Inflation subsides, but drives economic activity lower
Monthly inflation in February stood at 0.11%, its lowest level since May 2020, when the price collapse of the first four months of the COVID-19 pandemic ended. However, lunch has not been free, since the fall in inflation has been accompanied by a sharp slowdown in economic activity, which in January 2023 grew just 0.4%, compared to January 2022. This was due to the contraction of construction, commerce, and mining and quarrying activities, and the slowdown of all other economic activities except for financial services, real estate and rental activities, which showed growth similar to the 2022 average.
The fall in the inflation rate is attributed to the restrictive monetary policy; the reduction in international prices of raw materials compared to the record levels accumulated a year ago, when the Russia-Ukraine war broke out; and the maintenance of internal subsidies. The monetary policy rate (of 8.5% per year) remained unchanged in March 2023, for the fifth consecutive month, while the lending rate in February reached its highest level since February 2017. The nominal exchange rate maintains the appreciation trend that began in mid-January, while the Central Bank continues to accumulate net international reserves (now $15.6 billion).
On February 27th, President Luis Abinader presented his third annual report to Congress. He delivered a speech full of optimism, setting forth in extensive detail his achievements, and his promises for the rest of his term. Although not explicitly stated, it was pretty clear that from now on the focus of attention will be on the May 2024 presidential elections, both for the government and the opposition.
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