Wholesale prices in the US are on the rise, but what exactly does that mean?

The US economy, especially the wholesale economy in the United States, is heating up.

Maybe.

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Clik here to view.While it’s true that wholesale prices rose sharply in April over previous month, indicating a surge in ordering and demand, economist disagree over what this actually means. And as with a lot of economic information, this rise in wholesale prices may simply be of mild interest to economists, while having little to no impact on actual consumers and businesses.

See, the world of economic data is not exactly as cut and dry as it may seem to laypeople like you and me. For us, we see that the raw numbers from the Producer Price Index in the United States say that wholesale prices of goods and services rose 0.6% in April, closing in on 2% for the year. That kind of inflation hasn’t been seen for years, and could be a sign that the American economy is nearing its pre-2008 level.

Or not.

There are a multitude of reasons why we have seen a jump in the PPI over the past couple of months which may not have any connection to the national American economy as a whole.

A few months ago, I wrote about how the long, dark, cold, abominable winter in much of the United States slowed down the entire economy, hitting the wholesale industry the hardest. As much of the US finally thaws out and sees the sun for the first time in six months, this surge in wholesale demand may simply be a result of a temporary recovery from the harsh winter.

Other factors worth noting include the fact that there has apparently been some sort of pig virus going around, artificially raising the wholesale prices of meat. Likewise, drought in some American states has caused food production to fall, raising prices as well.

Moreover, there could simply be a problem with the PPI reporting itself. In January of this year, the US Department of Labor, who is in charge or calculating the PPI, changed the basic formula of the index. This means that economists are still struggling to understand what exactly the data says. While wholesale prices may be rising, it is hard to tell exactly where and why.

One reason why wholesale prices may be rising is due to higher margins by wholesale companies. Trade margins, which are the difference between what a wholesale company pays to purchase something from a supplier and what it eventually sells it for, have been a big part of the recent wholesale prices increase.

However, this is something that US government has only been tracking for a few years and there is very little historical data to compare it to. Of course, as wholesale business owners know, if you have a bad spell, such as a horrible winter, you raise prices afterwards to help offset some of the losses you took. And since there are only a few years of this information, there is no way to figure out if these price raises mean a better economy, or if they just happen every few years.

All that being said, it seems that wholesale economy in the United States is improving, but as usual, you shouldn’t believe everything you read in the newspaper.

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