Dominican Republic

Our view that inflation had peaked in August at 10.2% y-o-y and has played out as it came in at 8.6% in November. Inflation in 2011 was primarily driven by the government's cutting of energy subsidies as a result of an International Monetary Fund (IMF) agreement with the Dominican Republic which resulted in widespread price increases. As the base effect of the reform wears off and global energy prices moderate (our commodities team forecast the average price of Brent Crude to decline from US$109.5/bbl in 2011 to US$102.0/bbl in 2012) we expect inflation to fall to 4.0% by year-end in 2012.

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