Tariffs: When Does Inflation Happen?

This is surely an easy question to answer. And there is no shortage of people or entities who are more than willing to answer it.

We have answers from our president, their cabinet, their administration and advisers. We have answers from the politicians of any given party. We have answers from the Federal Reserve, economists, financial entities, and corporate leaders & numerous other entities galore. We have answers from the news media and from social media (even in this self-referential context). We have answers from family members, friends, neighbors, associates, co-workers, and pretty much anyone and everyone who you might be foolish enough to ask.

So, when does the inflation from the Trump Tariffs announced April 2, 2025 show up?

This is where the trouble starts.

If you are familiar with the old joke about asking two economists for their opinions on a question, you will get at least three answers. Well, it doesn’t get any better when you ask millions of people or multiple individuals from even one of the categories above. The reason(s) that you will be given to ‘support your answer(s)’ also explains why you get so many answers ranging from “economics is an inexact science”, to “it depends upon the quality of the data you have”, to “it’s all political”, to “it is a one-time thing and will balance out in the end”. These are all somewhat true; and they are all somewhat false; but worst of all they don’t actually explain anything.

My answer would be that “it is very complicated” which doesn’t really answer the question of “When” either. However, if you think about the “When” question from a process perspective, you can start to see how some of the answers (maybe all of the answers) fit together to provide a big picture answer from all the answer-pieces that are scattered about when you opened the inflation puzzle box.

What then is the ‘process’ perspective on Inflation?

At a very simple level, the process perspective is looking at how the things, variables, factors, or actions that produce “Inflation” occur over time. This requires that you view “inflation” as the results of these things, variable, factors, or actions and not the ‘cause’ of inflation itself. Inflation is the last domino in the row to fall not the first. The “process perspective” tries to lay out the series of steps (the dominoes) that will lead to that last domino (inflation) falling. The process is figuring out what made some sequence of dominoes to fall into others so one of them is a domino before the ‘inflation’ domino which then makes the ‘inflation’ domino fall. That chain of falling dominos is the ‘process’ that produces Inflation and it provides a way to indicate when it happens.

From a basic economic view, Inflation is the increase in the cost of something due to something that happens before the price increased. If the price of bread increases from $2,00 a loaf to $2.10 then there has been a 5% inflation to the price of bread; and there was something that caused the price to rise that 10 cents. What was that thing? It was not inflation. It is the thing that produced the inflation of adding 10 cents to the price you pay.

If you look for the chain of events that produce the resulting inflation, then you have a process view answer to inflation. And if you know how long each step in that chain of events takes then you ‘know’ when inflation will occur. Seems simple enough.

If only it were that simple.

What we need is a place to start. Since tariffs are currently a central issue fueling the political and economic caldron of inflation, let’s start with a tariff. Note: To keep focused, I am not going to answer the question of what “caused” the tariff action. Yes, it is one of the dominos that must ‘fall’ to initiate the process. However, if you are interested in answering the question about ‘when’ tariffs will cause inflation then the decision to initiate a tariff is a perfect stake in the ground to start from. Particularly to answer the specific question of “when does inflation happen?” in the context of chronological time? Thinking of the process in terms of time intervals also helps to keep you from slipping into a search for justifying the question of is initiating a tariff a good or bad decision. When does not depend on why you are choosing to act as a first order effect.

The Process Perspective:

Based on the following factors / actions, Inflation will happen on Inflation Day X where X is equal to the total of the following variables time intervals.

1. A starting point date, the stake in the ground, is the decision point/day to put a tariff into effect. This is Day 0. Day X follows from adding additional time (days) due to the following causal time-lines activities.

2. Actual tariff could go into effect immediately or on Day Y after Day 0. Add Y days to Day X; Y = Day Y = Day 0. For example, an announcement to start tariffs on April 2^nd could be made Y days before April 2^nd. If a tariff announcement was made on March 1^st then Y would be 32 days.

   1. If before April 2^nd a delay in the start is announced than a Delay interval in the process occurs. Delays adding to tariffs starting add Z days to Day X. Z = 0 to Z days.

   2. Negotiated Extensions can add more time. Add W days do Day X. W = 0 to W days.

3. For tariffs to have an effect there must be goods that the tariffs apply on. This condition occurs when an order on those goods is placed. The process has an interval for the Day an Order is placed on tariffed Item. Add V days to Day X, V = 0 to V days for how long it takes to place an order on an item(s).

4. There is also a time for the producer of the goods to fulfill the order.  This time accounts for the interval for the tariffed Item to be produced and shipped. U is the time required for a particular item(s) for what is ordered. Add U days to Day X. U = 0 to U days.

5. When the tariffed goods are received by importer and taxes (tariffs) are paid and those goods are available in the importer’s inventory for sale and delivery to their clients/customers. This involves T days. Add T days to Day X. T = 0 to T days.

6. The importing business/corporation acts to deal with the tariff / tax costs on their product pricing and providing changes to their customers. Add S days to Day X. S = 0 to S days.

   1. This activity may be carried out independently or in conjunction with other steps and take little to no time, or it may await a decision until after the taxes /tariffs are paid.

   2. There can be other impacts to what a business does in acting on the tariff costs, These will be discussed in subsequent posting(s) along with the impact on time intervals.

7. Customers also contribute to the process of when inflation happens. They make decisions to purchase, defer purchase, or not purchase goods; all of which can introduce a different effect on when inflation occurs or even on whether inflation occurs. For each customer this means that there can be a time interval that is unique to them. Thus there are as many time impacts as there are customers for a given good that is tariffed. At first glance, let’s assume that there is an aggregate time R for all customers as a simple factor R.  Add R days to Day X. R = 0 to R days across all customers. The impact of multiple customers will be considered later, and will include among other things:

   1. How a price change changes their time to decide to purchase: Rp

   2. How a decision to not purchase impacts inflation: Rnp

   3. How a decision to defer / delay a purchase impacts inflation: Rd

   4. Whether a customer decides to purchase more or less of a good: RcWhere R = Rp + Rnp + Rd + Rc 

8. H.      Additional factors and interactions among factors and events will be discussed in subsequent posting(s).

   
   

It should be easy to determine how long it takes for inflation to show up from the imposition of a tariff. Well, easy may be an overstatement even if the time equation for when inflation occurs is just a matter of simple addition. After all, look at the simplicity of the base equation:

Day X (Inflation happens) = Y + Z + W + V + U + T + S + R  days after Day 0

Just from this rather basic equation, it should not be surprising that the general expectation regarding the time delay (lag) for inflation can vary greatly depending on what each of the activities involves. The recent tariffs have had estimates of when their inflation impact will be felt ranging from 3 to 18 months on different products. We can easily recall that the price of eggs can change very quickly, whereas the price of a car might take significantly longer.

Now, while the above equation is simple in concept, it doesn’t account for other factors and it is representative of the time-delay for one product or type of products. A tariff’s impact on food(s) could be short as the cycle time for importing fresh produce is short and all the steps are of necessity short to keep it fresh. Food that keeps longer can thus delay the inflation effect longer. Imported materials can be much longer since most of them do not degrade and already have longer intervals involved in moving them from source through all the intermediary steps and the purchase by the client and then customer. The time it take for inflation to show up will thus become more and more complex as each product’s simple equation is added together with the simple equations of other products’ equations. And then there are the other complicating factors that impact the simple equations for each and all the products involved and effected by the tariffs.

This is one of the reasons why economics is still an inexact science. Even if the basic equation was all you needed to know, you would need accurate data to make a forecast. Then if you were dealing with lots of different products being impacted, you would need that data for each product. If just one of those tariffed products interacted with the process of another the simple equation get disrupted and the interactions begin to come into play. This could be a huge amount of data that you would need to obtain. You would also need to have some knowledge of how things will change during the period that you are forecasting, and by now you ought to be recognizing that the complexity just got complicated.

When economists talk about the impact of inflation being a “one time” shock to the economy or having a recurring or interactive impact, they are acknowledging that the processes and the time can be more and more complex.