Inflation in Dominican Republic

A short history of inflation in Dominican Republic

The Baninter Collapse (2003 to 2004)

Dominican inflation peaked at 65.3% in the year to May 2004, and it came from a single bank. Banco Intercontinental, the country's second largest private bank, collapsed in 2003 in a fraud whose scale approached two thirds of the national budget. The government guaranteed all deposits, and the central bank financed that guarantee by creating money: the monetary base roughly doubled in eight months. The peso fell heavily and prices followed it.

Inflation fell back almost as quickly once the bailout was complete and an International Monetary Fund programme was agreed after the 2004 election. It stands as an unusually clean demonstration of the mechanism: no war, no oil shock and no chronic deficit, simply an obligation the state could not fund met by the printing press.

Post-Covid Inflation (2021 to 2023)

In Dominican Republic, prices rose fastest in May 2021, at 10.5%. The causes of the post-Covid inflation were global in nature, beginning with the lockdowns: factories and ports closed and the shipping between them fell out of sequence, so goods took longer to make and longer to arrive. Governments had spent heavily supporting household incomes through those closures, so when restrictions lifted there was money waiting to be spent and not enough on the shelves to spend it on. Then in February 2022 Russia invaded Ukraine, disrupting two of the world's largest suppliers of wheat, fertiliser, oil and gas at once, and the cost of everything grown, heated or transported rose with them.

Because the causes were shared, so was the timing: most countries peaked within a few months of one another in late 2022. The major inflation events covers this episode and the others in more detail.