Trade taxes and boiling frogs

Daily update

Markets have reacted to media reports suggesting that the next US administration will impose trade taxes on US consumers gradually, month by month. Remember past media reports on tariff policy have subsequently been denied over social media. This is a boiling frog approach—the price level effect is the same, but consumers may not notice so much. The risk is that repeated tariff increases would encourage repeated profit-led inflation episodes by providing a convenient cover story.
US December producer price inflation is due. This will be worth watching as tariffs develop because trade taxes will increase input costs for US companies. If tariffs succeed in reducing imports, the loss of competition to US firms may also increase pricing power.
The US NFIB small business survey is due. This soared in November, but that likely reflects the partisanship of the survey rather than representing an actionable economic change.
Europe’s calendar remains littered with central bankers. ECB Chief Economist Lane already gave a comprehensive explanation of views, but is scheduled to speak again. ECB council member Rehn suggested that policy would cease to be restrictive by “the summer” (a suitably vague deadline). ECB remarks are generally consistent with rates moving to around 2% by the end of the year.