Facts or feelings? The role of relatable narratives in shaping inflation expectations

We examine whether combining factual information on inflation levels and forecasts with a narrative can persistently shape consumers' inflation expectations. In a preregistered randomized controlled trial with a representative sample of 3,000 German consumers, participants received either numerical or textual information about inflation rates, with or without an accompanying narrative. All treatments immediately lower inflation expectations, with numerical information eliciting stronger adjustments. Adding a narrative produces no additional immediate effect, confirming that it conveys no new information. However, only the combination of numerical information with a narrative yields a lasting reduction in inflation expectations and forecast uncertainty still observable after four weeks. Our results suggest that combining precise information with a narrative enhances information retention and can lead to more persistent shifts in consumers' beliefs. The effects are strongest when respondents perceive the narrative as relatable and emotionally engaging, and among those with low financial literacy and limited knowledge of inflation.