IMF Staff Country Reports

This Selected Issues paper focuses determinants, risks, and expectations to study inflation in Guatemala. It analyses: (1) quantify the role of external and domestic factors on the dynamics of inflation in Guatemala. It identifies imported factors driving inflation dynamics and estimates their importance for Guatemala; (2) presents a risk assessment of core inflation by estimating the determinants of upside risks across countries, focusing on Guatemala; and (3) analyzes the behavior of inflation expectations under a high inflation scenario and investigates the main factors that explain IE over the medium term. The empirical model decomposes the evolution of the inflation rate into external and idiosyncratic factors. Domestic factors also explained Guatemala’s core inflation-at-risk. Guatemala’s upside risks have increased, explained by domestic and external factors. The main drivers of inflation expectations in Guatemala seem to be the actual inflation dynamics, changes in the monetary policy rate, and lagged expectations. The key determinants of changes in inflation expectations are the inflation rate and policy rate changes.