The return of profit-led inflation?

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US President Trump’s commitment to taxing US consumers of imports has direct effects on inflation (up) and growth (down). Any evidence of second-round effects will be of more concern to the Federal Reserve, as these may linger beyond the initial shock. Profit-led inflation is a particular risk.
Profit-led inflation occurs when retailers know more than their customers about inflation drivers. If retailers can tell their customers a story about external forces (beyond their control), the story becomes a convenient excuse for retailers to raise prices and boost profit margins.
After the pandemic, stories of supply chain disruption and labor shortages allowed US retailers to raise prices and push their profits from 13.3% of retail GDP to 21.7% today. Customers were unhappy, but media scare stories made them more accepting of the price increases.
Trump’s trade taxes allow similar storytelling. Media attention might focus on a 10% tax, not mentioning that taxing import prices 10% should only increase consumer prices 4%. Consumers may thus accept a 10% price increase, when only a smaller increase is justified. Itemizing the Trump tax on consumer receipts would help monitor whether profit-led inflation is taking place. Amazon’s recent refusal to identify the Trump trade tax price share is therefore disappointing to economists.