Prices fell in December, indicating U.S. businesses are not passing on the costs of tariffs to consumers.

The Labor Department said Wednesday that its Producer Price Index fell in December. Compared with the month, prices were down 0.2 percent. Economists had forecast a slight price gain for the month.

The index for final demand goods–which are those most likely to translate into consumer prices–moved down 0.4 percent in December, the same as in November. Food prices rose. Absent food and energy, final demand prices rose 0.2 percent.

One reason for the very tame inflation data is the steep drop in the price of oil. Absent the volatile food and energy categories, prices of goods fell just 0.1 percent. Gasoline prices fell 13.1 percent in December and overall final demand energy prices dropped 5.4 percent.

Inflationary pressures have been easing. Producer prices advanced 0.1 percent in November and 0.6 percent in October.

On an unadjusted basis, prices were up 2.5 percent compared with December 2017. That is a move down from the year-over-year price gain of 2.7 percent recorded in November and it matches what was recorded in December of last year. In other words, the December price gains were no higher than what was recorded before the Trump administration’s tariffs on steel, aluminum, and China imports were imposed.

Price levels have held remarkably steady on most categories of goods in 2018, defying predictions that American households would be squeezed by tariffs on steel, aluminum, and around $250 billion of goods made in China. On Monday, China’s commerce ministry announced that it ran a trade surplus with the U.S. last year that was the highest on record. The U.S. collected around $8 billion in tariffs in the October through December period, around 83 percent more than the period a year prior.

Price increases are more noticeable lower down in the production chain of materials and components that go into making final goods, although recent data show that rise has moderated or reversed. Steel mill products, for example, fell 0.6 percent for the month but were up 18.5 compared with a year ago.

Prices of materials used in durables manufacturing—which are those most likely to be affected by the tariffs on steel and aluminum—fell 0.2 percent on a monthly basis, the third consecutive monthly declined. For the year, prices were up 7.6 percent, a substantial slowdown in price increases compared with earlier readings. Prices of components for durables manufacturing rose just 0.2 percent on a monthly basis, and are up 2.3 percent for the year.

Prices of durable goods were flat in December, the second month in a row of zero price increases. Compared with a year ago, prices were up just 1.6 percent.

What this suggests is that the cost of tariffs is getting swallowed along the production process by each contributor, from the buyers of raw metals to the producers of final goods, and not reaching consumers.

Another big metals using category is automaking. Here too there were many predictions that metals tariffs would push prices up. And those predictions have been wrong. Car prices were down 0.1 percent for the month and are flat on an annual basis. Light trucks—which include pickups and many sports utility vehicles—were also down 0.1 percent for the month and are up just 0.8 percent annually.

Prices of household appliances rose 0.8 percent on a seasonally adjusted basis in December, reversing at least two consecutive months of declines. For the year, appliances are up 3.7 percent. That one-month gain could be the strongest indication in the numbers that the second China tariffs pushed up prices. But prices can be volatile month-to-month, especially around the holiday. Still, this category is worth watching.

Another category that could be hit by the China tariffs, however, was flat for the month: home electronics. For the year, prices were down 0.2 percent.

The lack of transmission through the chain of production suggests that it is wrong to assume that consumer prices are determined by businesses setting their price as a markup over production cost. If that were the case, the prices on final goods included in the PPI would move up when intermediate materials prices move up. Given muted wage increases over the last several years, as well as an increase in inequality that has seen much of the economic gains in recent decades concentrated with the very wealthy, it may not be possible for businesses to pass on higher costs. Consumers cannot afford to pay more.

Instead, it appears that the markups are falling—reducing profit margins of American businesses. These were bolstered, however, by very significant cuts in the tax rates paid by American businesses. Tariffs may simply be offsetting some of the profit gains from tax cuts.

The evidence from December’s PPI data suggest what all price data since the Trump administration began imposing tariffs have suggested: consumers do not necessarily pay for tariffs, at least in the short-run.

The producer price index is an alternate inflation measure. Where the more familiar consumer price index measures prices paid by consumers, the PPI measures prices received by producers. They tend to move in sync with one another, although there can be gaps between the two measures.

The PPI data demonstrate that while some businesses are paying higher prices, they have not passed those on to consumers.