This paper examines how consumers in the United States (US) and South Africa update their beliefs about unemployment and growth in response to inflation shocks.

^{by Lovisa Reiche} 

Using a novel experiment, I elicit both narratives and precise expectation updates.

US consumers link inflation increases to supply shocks and disinflation to demand shocks, while South Africans associate inflation with general economic health.

Higher-than-expected inflation raises perceived unemployment, reduces consumption and – in the US – increases informal borrowing without triggering higher wage demands.

These patterns highlight the role of consumer narratives in shaping macroeconomic expectations, with implications for monetary policy, labour market behaviour and distributional outcomes, especially in emerging economies prone to supply-side shocks.