Narratives and the Household Inflation Expectations

This study uses a randomised experimental survey to explore how narratives about the transmission mechanism of the Bank of Russia key rate shape Russian household inflation expectations. It reveals that the cost channel dominates in respondents' subjective models, and the key rate increase is more often perceived by them as a factor of price growth. The impact of providing narratives varies based on what people already believe: when narratives highlight the demand channel, they tend to lower inflation expectations, especially among those respondents whose initial views align with these narratives. Simply sharing information about the key rate hike without explaining its implications can actually raise inflation expectations for some groups. However, when this information is paired with a narrative about the demand channel, it can lead to a notable drop in those expectations. The findings from regression and mediation analysis suggest that trust in the information provided further reduces inflation expectations. The findings reveal heterogeneity in respondents' reactions by gender and education level, underscoring the need for a targeted communication strategy that relies on clear narratives and takes into account the audience's initial beliefs.