Correction: What are inflation surprises telling us about tariffs?

I have corrected my discussion of PPI trade services in my post last week. Acquisition costs do include tariffs for imported goods. Thanks to Laura Rosner-Warburton for pointing out my error and the BLS for confirming the inclusion of tariffs. Apologies for my mistake.

Here was the reply from BLS:

The Producer Price Index measures the average change in revenue producers receive for the sale of their goods or for the services they provide. Since there is typically no product transformation that occurs in the cases of wholesale and retail trade, PPI defines the service provided by wholesalers and retailers as the facilitation of the sale of goods.

Therefore, in these cases the PPI measures the average changes in gross margins, rather than the change in price of the products sold. PPI defines margins as the difference between selling and acquisition prices, which typically equate to gross revenue for a wholesaler or retailer. Any tariffs imposed on imported goods acquired by a wholesaler or retailer would be considered a direct increase in their acquisition prices. However, whether there is an actual change in margins for those goods would depend on the extent those higher acquisition prices are reflected in the selling prices of the wholesaler’s or retailer’s products.

Bottom line: Tariffs compress margins (all else being equal in terms of costs) unless the wholesaler or retailer increases their selling price. Trade services for apparel retailers remain largely unchanged this year, suggesting that higher selling prices (or lower other acquisition costs) are offsetting the additional cost of tariffs.

What are inflation surprises telling us about tariffs?