Bear Stearns update on Inflation
DomRep's central bank has released inflation numbers for June, showing that consumer price pressures remain relatively contained. A monthly rate of less than 0.8% in June brought accumulated inflation for the first six months of the year to 3.5%, putting it on track to meet our 7.0% forecast for 2006 as a whole, a result that would constitute a small improvement over last year's 7.4% and would be in line with the official forecast of 5%-7% for this year. According to the central bank, more than half the rise in consumer prices during the first half of 2006 (1.9% of the 3.5%) can be attributed directly to increases in international oil prices (DomRep imports all the oil that it consumes). Had oil prices remained flat during the January-June period, year-to-date inflation through the mid-year point would have totaled less than 1.6%. We view this as a testament to the country's successful implementation of an effective monetary policy scheme that, despite a less than ideal global backdrop, has also fostered a reduction in local interest rates (the yield on one-year central bank paper is down to 12% from 17% at the beginning of the year), stability in the foreign exchange rate (the currency has traded at under 33 pesos per dollar since late February) and a build-up in net international reserves (which are up by 6.5% so far this year).
Franco Uccelli
561-672-4780
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