Bear Stearns researcher Franco Uccelli reports that while the lower levels of inflation seen in the Dominican economy over the past few months are positive signs, he feels that the country should guard against the negative consequences of a potential deflation in the economy. Ucelli tempers his warning by saying that a deflation would be the result of an excessively weak demand, which would probably be a passing phenomenon. Uccelli’s report says that the inflation numbers for May, put at what is describes as a “remarkably low” 0.9% are enormously below the 65% inflation registered in 2004 for the same period. He says that the Central Bank is celebrating the slowing of price increases and attributing the process to the government’s moderate monetary policy framework and the prudent management of the DR’s fiscal accounts. Nonetheless, since the inflationary tendency is still on the positive side overall, Uccelli concludes: “While deflation often means exceedingly weak demand, it may just be a temporary phenomenon reflecting the normalization of price levels. Bottom line: Lower inflation levels are good, but beware of the potential negative consequences of deflation.”