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Economist Forecasts Dominican Republic Inflation Could Exceed 7% in 2026
Inflation in the Dominican Republic could finish 2026 between 6.65% and 7.10%, according to economist Héctor Sánchez, who attributes the outlook to higher fuel costs, broadening price pressures, and sustained domestic demand.
Héctor Sánchez, a Dominican economist, projects that inflation in the Dominican Republic will remain above the Central Bank’s target range throughout 2026, reflecting mounting price pressures that extend beyond temporary external shocks.
In his analysis, titled “June Inflation and What Comes Next”, Sánchez estimates that annual inflation could close the year between 6.65% and 7.10%, with an average forecast of 6.89%. That would place inflation well above the Central Bank’s target of 4% ± 1%, a benchmark used to guide the country’s monetary policy.
The economist noted that annual inflation reached 5.67% in June, while core inflation—which excludes unprocessed food, fuel, and regulated prices—stood at 4.96%, approaching the upper limit of the official target range.
Price Increases Expanding Across the Economy
Sánchez argues that inflationary pressures are becoming more widespread across the Dominican economy rather than remaining concentrated in a few sectors. To illustrate this trend, he highlighted his own Inflation Diffusion Index, which measures the share of Consumer Price Index (CPI) categories posting monthly price increases.
According to his calculations, the index reached 75% in June, suggesting that rising prices are affecting a growing number of goods and services. Such broad-based inflation can make it more difficult for policymakers to contain price growth because increases become embedded across different areas of the economy.
Fuel Costs and Second-Round Effects
The economist identifies higher fuel prices as one of the main drivers behind the latest inflation trend. Increased transportation, logistics, and energy costs have gradually filtered through supply chains, leading businesses to pass part of those higher operating expenses on to consumers.
These so-called second-round effects can prolong inflation even after the original source of higher costs begins to ease, as businesses adjust prices across multiple sectors.
Sánchez also pointed out that core inflation has remained above 4% for 19 consecutive months. In his view, this indicates that inflation is no longer driven solely by imported factors but also reflects persistent domestic pressures linked to supply and demand conditions.
Models Point to Continued Inflationary Pressure
To estimate inflation during the second half of 2026, Sánchez used several econometric models, including Ordinary Least Squares (OLS), ARIMA, and Holt forecasting techniques, based on data covering the period from July 2025 through June 2026.
His projections suggest that core inflation will remain above 5% beginning in July and could reach approximately 5.38% by December, reinforcing expectations that underlying price pressures will remain elevated through year-end.
Challenges for Economic Policy
Sánchez believes the projected inflation path presents a difficult policy trade-off for Dominican authorities. Tightening monetary policy further could help curb inflation but may also slow economic activity and affect employment. Conversely, maintaining policies that prioritize growth could allow inflationary pressures to become more deeply rooted in the economy.
The outlook underscores the delicate balance facing policymakers as they seek to preserve price stability while sustaining economic expansion in one of the Caribbean’s largest economies.
