What we have now is the PPI coming in a little hot. What I’m looking at specifically is core PPI came in hot. (Stripped of the more volatile components. This is what I would expect from tariffs. We tend to think of tariffs as impacting just end user commodities, like wine or automobiles. But it also impacts goods used to make goods, such as the input steel or the machine needed to punch that steel.

Is it really from tariffs, which would definitely be a competing factor. There are multiple mechanics at play. One is how sticky producers expect tariffs to be. If you see a TACO moment coming, or a Supreme Court about to throw out the tariffs, you don’t want to annoy your customers with a sudden price hike. Especially if the court allows you to recoup your tariffs from the treasury. You could eat the costs and burn down the inventory built up prior to the tariff being applied, hoping to replenish it in a low or no tariff environment. This strategy has a limited life span. We’ll know February 20, whether it’s a realistic strategy.

Next is the swiss-cheese nature of the tariffs. There are significant exemptions or carve outs that lower the effective tariff rate well below the statutory rate. Just ask Apple. You say it’s a 25% tariff but then exempt several sub-products or specific companies, meaning the macro effect of the tariff might be 10%.

Then we have supply chains re-adjusting. Some companies may have imported part of something from China, like the motor, castings from Mexico, shipped it up to Canada for paint and assembly, and then back to the US for the electronics, partly imported from China and assembled in Mexico. They might look at that machine and decide it’s better to just make it in Canada and pay one import tariff.

Next, some companies just paused imports for a while, meaning you couldn’t buy the imported thing, as they were figuring out how to file the paperwork for the product. Now they’ve figured it out or adjusted their supply chains and can now start importing those goods.

There are a set of reasons as to why the tariffs may have had delayed impact. And those impacts sit on top of the month to month noise in the PPI. That noise is a product of both problems in data collection (with respondents more likely to be late in their replies) and just variability in behavior. It could very well be that the tariffs would have had a more noticeable impact over the last few months, except for noise. Or this month is the aberration and the actual tariff impacts have been swiss-cheesed into a nothing burger. And as we get 12 or 18 months of data, it will become more clear.