Inflation narratives: US consumers link supply shocks, SA general health

The research identifies a clear asymmetry in US consumer narratives: upside inflation shocks are attributed to supply-side forces like supply chain disruptions and geopolitical tensions, while downside shocks are linked to demand-side factors such as contractionary monetary policy.

In stark contrast, South African consumers predominantly associate any inflation deviation, whether up or down, with broader supply-side pressures including unemployment, food prices, and input costs, reflecting a view of general economic health.

Higher inflation expectations causally increase perceived unemployment and decrease job-finding expectations in both economies, with stronger effects observed in the US.

However, these expectations do not significantly alter labor market behaviors.

Instead, consumers in both countries respond to higher inflation by reducing their consumption, highlighting a direct impact on household spending decisions and potentially broader economic activity.

The study utilizes novel experimental data collected between January and May 2024 from both South Africa and the United States.

This cross-country setting, harmonized for comparison, provides new evidence on how consumers in middle-income countries link inflation to unemployment, a context particularly relevant given their greater exposure to supply-side shocks.

The experiment employs hypothetical inflation vignettes and continuous treatment to isolate the causal effects of inflation magnitude on expectations and behavioral responses.

At the time of the surveys, both countries experienced similar CPI inflation and GDP growth, though South Africa faced substantially higher unemployment rates, alongside specific challenges such as widespread energy supply constraints ('load shedding') and an upcoming general election.