I don't think merchant inventories are related to character level, at least that I ever noticed. I primarily relied on dropped or found equipment, and usually did not give more than a casual glance at merchandise, except to sometimes check expensive jewelry or equipment when shopping for charms and spell books. Kistandalius was probably the first merchant I traded with that I continued to do so until the blessing ceremony, and I didn't notice any significant changes in his offerings.
As far as I recall, the total value of the trade inventory remains about the same for each merchant. If someone wanted to check that, they could go through Ars Magicana a couple times in a save late in the game, and then do so again in a new game using shadow and stamina potions to bypass opponents. Farmers or soldiers could rarely have spell books, etc for sale, but that seems to be just random. Whenever other merchants started keeping equipment I sold them, the amount randomly generated dropped. In cases where particularly expensive items were available, the number of items dropped, and conversely, if the available items were poor quality, there would tend to be more of them.
