The Stories People Tell: Households’ Inflation Narratives and the Media

This paper investigates how households conceptualize inflation and how these qualitative narratives correlate with inflation expectations and policy preferences. Using a representative survey of over 4,000 German households, we elicit open-ended narratives regarding the 2022–2023 inflation surge and represent them as directed acyclic graphs (DAGs) via fine-tuned large language models. We find that German households overwhelmingly interpret the inflation episode through supply-side channels and the war in Ukraine, while demand-side explanations remain comparatively rare. Beyond these aggregate patterns, inflation narratives systematically vary by financial literacy, personal economic experience, and institutional trust. Narrative structure and content correlate with inflation beliefs: supply-side narratives are associated with lower inflation expectations, whereas narratives emphasizing government action or corporate price gouging correspond to higher expectations and lower target inflation rates. A preregistered randomized information provision experiment using real-world newspaper excerpts demonstrates that exposure to news narratives significantly impacts qualitative inflation expectations, whereas quantitative expectations display greater rigidity. However, narrative exposure significantly reduces reliance on prior inflation perceptions, with treatment effects exhibiting mild heterogeneity across levels of financial literacy and prior inflation experience.