["Journal of Money, Credit and Banking, EarlyView. ", "\nAbstract\nUsing survey data from Germany, we study heterogeneity in how households form inflation expectations. We elicit (i) uncertainty in perceptions of current inflation and (ii) how persistent households perceive inflation to be. Combining these with standard survey questions on inflation, we infer laws of motion for expectations at the individual level. Based on averages alone, a standard model calibrated to our data predicts inflation shocks generate small and transitory responses in expectations and consumption. The considerable heterogeneity we observe in expectation formation, however, amplifies the transmission to aggregate consumption by an order of magnitude, and substantially increases its persistence. This amplification enables the model to match the large consumption effects of the temporary Value Added Tax (VAT) cut in Germany in 2020."]