We study inflation dynamics in Colombia using a bottom-up Phillips curve approach. This
allows us to capture the different drivers of individual inflation components. We find that the
Phillips curve is relatively flat in Colombia but steeper than recent estimates for the U.S.
Supply side shocks play an important role for tradable and food prices, while indexation
dynamics are important for non-tradable goods. We show that besides allowing for a more
detailed understanding of inflation drivers, the bottom-up approach also improves on an
aggregate Phillips curve in terms of forecasting ability. In the baseline forecast scenario, both
headline and core inflation converge towards the Central Bank's inflation target of 3 percent
by end-2018 but these favorable inflation dynamics are vulnerable to large supply shocks.