News Media, Inflation, and Sentiment

Abstract

We study the relationship between media portrayals of inflation and consumer sentiment. Using tools from natural language processing, we uncover two competing narratives in US news coverage of inflation: the first relates inflation to financial variables, while the second relates inflation to real variables. As inflation rose in 2021, media increasingly emphasized the real economy. Linking inflation news to social network data from Twitter, we find that exposure to articles emphasizing the connection between inflation and the real economy significantly reduces sentiment, particularly in periods of high inflation. Shifting media narratives may therefore have contributed to declining consumer sentiment in 2021.