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Sean Darcy's avatar

Puzzled. Isn't BLS saying PPI does NOT include tariffs?

"PPI measures the average changes in gross margins, rather than the change in price of the products sold."

If the price of the product doubles, but gross margin stays the same, PPI doesn't change. So substantial inflation without any change in PPI.

What am I missing?

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John Evans-Klock's avatar

CPI would increase with the tariff. PPI would not (or at least not automatically.). Since the merchant’s acquisition price is tariff-inclusive, the price of produced service has not gone up.

I find it somewhat confusing, since I tend to think of the PPI as simply “upstream prices in the chain”. But if I instead think of this protocol as just “avoiding inflation’s distortion to GDP” I can follow it.

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Sean Darcy's avatar

This is wild. Assume xxx% tariffs. CPI goes up yyy% , PPI would stay the same, indeed probably decline ( the importer bears some of the tariff). Not what I would have expected.

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Edward J Huff's avatar

So apparently the PPI for businesses that buy and sell stuff quotes the price they collect for the service of selling stuff, not the prices they sell stuff for. The PPI for businesses that make stuff apparently reflects the selling price minus the cost of materials? And labor? Is it really the profit margin not the price?

Do most subscribers already know off hand what the PPI is?

The Wikipedia article on PPI could use some attention.

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LOWELL BASTIANELLI's avatar

Perhaps what is being said here, is that this “financial product transformation” is reflected surreptitiously by organizational design of the handoff of the “financial index metrics” from ‘supplier to wholesaler to retailer’ (with a US PPI-exit locus in mind—or Not in mind?).

Operating Margin can be gleaned from the ‘Producer Profitability metrics’, inside the US Producer’s Operations, or show up as an initial ‘Exporting-Supplier decrease in the Gross Revenue, as a new ‘Cost of doing Business with the US’, on a per-unit-basis, on the Exporter’s Books’, and thus be priced into US Producer’s Operations(or Not?) as an increase in COGS—that is, as an increase in material Costs(per unit), even before the Product(Material) arrives on the US shore.

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Bill Flarsheim's avatar

Someone posting as Stay At Home Macro SAHM (@stayathomemacrosahm2) is replying to comments on your March 4 and June 4 posts. The impersonator is directing people to an investment opportunity. You’ll want to get Substack to take it down and kill the impersonating account.

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Edward J Huff's avatar

I think the PPI doesn't include foreign producers at all. It shows how much prices of domesticly produced goods and services have increased or decreased (as a ratio). Literally, it's a bunch of prices now divided by prices for the same stuff then, a month (?) earlier.

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