Talk of looming tariffs across a wide array of imported goods and countries is a hot topic for many. Whether you are for them or against them is a more individual question we are not getting into here. At ITR Economics, we focus on policy and managing the outcome(s), all while staying out of the politics. We will have more about President-elect Trump’s policy changes in our upcoming March webinar. In the meantime, there are multiple ways you can better position yourself for potential upcoming changes. As part of an ongoing series of blogs about tariffs, below are some pre-tariff steps you should be thinking about now. The thought process is the same for general inflation, which we see coming back in force post-2025.
Whether you are electing to increase inventory ahead of tariffs, searching for different suppliers, or planning to pass increased costs directly on to your customers, do not forget how critical having accurate data is for maximizing your margins.
The Consumer Price Index (CPI) and Producer Price Index (PPI) are well-publicized and well-known metrics that businesses use for setting and justifying prices. However, in times of increasing inflation and, in particular, times of changing tariffs, using a more fine-tuned metric is critical for setting purchase and sale prices and for protecting margins.
Below is a collection of pricing metrics along with their latest inflation rate:
| US Consumer Price Index |
2.7% |
| US Producer Price Index |
0.7% |
| US Aluminum Base Scrap Producer Price Index |
23.9% |
| US Steel Scrap Producer Price Index |
0.3% |
| US Plastic Resins and Materials Producer Price Index |
2.2% |
| US Retail On-Highway Diesel Price |
-17.2% |
| US Construction Materials and Components Producer Price Index |
1.0% |
| US Hardwood Lumber Producer Price Index |
7.3% |
| US Hardwood Flooring Producer Price Index |
0.5% |
Use the PPI or CPI?
Let’s start by noticing the delta between the CPI and the PPI. A two-percentage-point delta in those metrics could translate to some significant cost savings or markup depending on your usage.
Get Specific
Looking further into producer price trends, there is a wide range of inflation across materials. Aluminum Base Scrap Prices are up 23.9% while Steel Scrap Prices are up a mere 0.3% during that same period.
The last two on the list above warrant special attention as well. Hardwood Lumber Prices are up 7.3%, but Hardwood Flooring Prices are up only 0.5%. Since the Great Recession, Hardwood Flooring Prices inflation has been more muted than for overall Hardwood Lumber. Just because two metrics sound like they should be closely aligned does not mean they face the same inflation pressures.
Determining pricing metrics that most closely align with your inputs and following them will equip you with a negotiating tool when making material purchases. It will also be a tool for price increase justification with your buyers.
Run the Numbers Now
Before tariffs change, or inflation becomes an issue again, proactively work toward determining which metrics best align with your business so you are better positioned for whatever policy changes occur. Discover which will provide you with the most margin as prices rise, and explore other measures you can employ to keep costs down from your suppliers.