Global Lab – Concerns about rising prices

According to various surveys conducted in the country, one of the major concerns affecting various sectors of national life is the general rise in prices, which includes basic household baskets, key products of fuels and construction materials.

And really, it is. This year, the Dominicans’ pocket was severely punished by rising prices of items such as chicken, beef, onions, garlic, bread and cooking oils.

In the same way, oil prices are rising rapidly and have reached $ 82 a barrel these days, which is expected to reach $ 90 by the end of this year. With regard to construction materials, the sectors involved in the real estate sector are fearful of rising prices of cement, rebar and timber, which show an increase of more than 50 per cent in their original prices.

According to official figures, intermediate inflation from May 2020 to May this year peaked at 10.48 per cent, well above the central bank’s inflation target of 4 per cent, higher or lower. It ranges from a minimum of 3% to a maximum of 5%.

Inflation or inflation is something that has practically disappeared from the world economy. But now it has reappeared as a result of the stimulus policies that global central banks have to apply in response to the economic and social impact created by Govt-19.

In response to the epidemic, the global money crisis is estimated at about $ 10 trillion, equivalent to one-tenth of world GDP, which is currently estimated at about $ 90 trillion.

Inflation factors
The monetary and monetary expansion policy used by governments aims to stimulate economic recovery. In doing so, it has encouraged an increase in demand in an environment where supply is declining due to epidemic imprisonment.

It is logical that because of this imbalance between supply and demand, prices or inflation of basic commodities or commodities such as oil, natural gas, copper, steel, wheat, and corn have risen. And soybeans.

Added to this situation are the fall of global production chains, an increase in insurance and maritime cargo in freight transport, and an interruption in the disposal of containers in the world’s major seaports.

The low interest rates currently prevailing in the financial system, so-called investment banks, hedge funds and asset managers, seek to maximize the benefits to their customers by purchasing futures contracts. That, in turn, contributed to the rise in prices during the 2008 crisis.

These are all external factors that have certainly contributed to rising prices or inflation, which are reflected in the growing and developing world economies.

From that perspective, it can be argued that there is an external component or factor that affects inflation or inflation in our country.

Dominican inflation
However, it is not clear in principle why inflation is higher in the Dominican Republic than in general in Latin America and the Caribbean.

In fact, according to the International Monetary Fund, inflation in our country is currently higher than its sister countries in Central America, namely Guatemala, El Salvador, Honduras, Costa Rica, Nicaragua and Panama.

But, with the exception of Venezuela, Argentina and Haiti, it is above all other countries in the region. So, while it is true that there are currently external or import factors that cause inflation or inflation to affect the Dominican economy, on the other hand, it is not enough to explain why we are one of the major countries in Latin America and the Caribbean.

After a lot of reasons about this, we came to the conclusion that the monetary expansion policy used by the central bank until March 2020 was to counter the effects of Govt-19.

According to the central bank, “the central banks have implemented a general policy of monetary stimulus, ensuring that companies and households receive funds at low interest rates.”

To this, he adds: “In the Dominican case, more than 215 billion pesos (approximately 5.0% of GDP) were available to these sectors, making it one of the largest stimulus packages associated with similar economies the size of the Dominican”.

In fact, it was. To mitigate the decline in economic activity caused by the epidemic, it is necessary to provide the Dominican economy with cash flow to begin the recovery process.

But in all parts of the world, inflation and financial expansion have contributed to the undesirable effect of inflation. Now, if we add to the monetary expansion carried out by our central bank, in addition to imported inflation, it is easy to understand why the Dominican Republic is one of the first Latin American countries to have high inflation.

In a report for September this year, the central bank said inflation had begun to decline. It fell to 7.90% in August from its peak of 10.48% in May. The decline is reflected in the state financial institution itself, which means that “a systematic plan of monetary normalization has begun with the gradual withdrawal of resources provided by various cash flow facilities …”.

Perfect. The same argument, however, illustrates that the central bank, through its comprehensive monetary policy, is inevitably set to trigger an economic recovery, set by its magnitude as a major internal factor of inflation.

Despite the fact that inflation or inflation is said to be declining, for Dominican people who go to grocery stores and supermarkets, it is higher, however, higher than the central bank’s inflation target.