| Summary: | This Selected Issues paper studies inflation dynamics in Belize with the goal of quantifying the role of external and domestic factors in the recent inflationary episode and projecting inflation going forward. The paper applies a Principal Component Analysis to inflation data of several countries and finds that global factors have contributed substantially to both the historical variation and the recent surge in Belize’s inflation. Global factors explain most of the recent surge in inflation in Belize and are projected to reduce inflation going forward. An estimated Phillips curve also finds that external factors, proxied by food and fuel prices and US inflation, have been a key driver in the surge in Belize’s inflation during the last two years. The estimation results show that external factors have significant effects on Belize’s inflation
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