Canadian Industrial Prices Fall in May

Influenced by the strength of the Canadian dollar, prices in Canada for manufactured products declined in May after six consecutive monthly increases. Crude oil pushed down prices for raw materials.
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From April to May, prices charged by manufacturers, as measured by the Industrial Product Price Index (IPPI), registered a  ; 0.5% decline after six consecutive monthly increases. The decrease in prices basically reflects a drop in the prices for motor vehicles and other transportation equipment as well as primary metal products and pulp and paper products.
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However, higher prices for petroleum and coal products tempered the decline in the Industrial Product Price Index.
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On a 12-month basis, the IPPI advanced  ; 3%, a slowdown from the  ; 3.8% increase registered in April. The upward pressure came mainly from higher prices for primary metal products and, to a lesser extent, increased prices for chemical products and petroleum and coal products. The upward movement was slowed by a drop in prices for lumber and other wood products and motor vehicles.
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The Raw Materials Price Index (RMPI) declined  ; 0.2% from April to May after registering three consecutive monthly increases. The month-over-month decline in the index is mainly attributable to mineral fuels and ferrous materials, while non-ferrous metals continued their rise for a third consecutive month.
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Compared with May of last year, raw materials cost plants  ; 1.9% more, which represents a slowing in comparison with the  ; 8.0% rate of increase recorded in April. The rise in the index was mainly led by non-ferrous metals and was slowed by mineral fuels.
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In May, the IPPI was  ; 117.7  ; (1997=100), down from April's revised level of  ; 118.3. The RMPI was  ; 173.7  ; (1997=100), down from April's revised level of  ; 174.0.
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IPPI: Petroleum and coal products slowed the decline of industrial prices
The month-over-month decrease in manufacturers' prices was led mainly by the decline in prices for motor vehicles and other transportation equipment and, to a lesser extent, the prices for primary metal products and pulp and paper products. However, the decline in the total index was dampened by higher prices for petroleum and coal products.
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Prices for motor vehicles declined  ; 2.2%, the largest monthly drop in  ; 30  ; months. With the Canadian dollar rising in value against its U.S. counterpart, and where automobile manufacturers' sales are denominated in U.S. dollars, the prices for motor vehicles underwent a devaluation in Canadian dollars.
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Prices for primary metal products declined  ; 1.2% in May after rising in the previous three months. Aluminum prices fell  ; 3.5% in conjunction with  ; 8  ; consecutive months of rising inventories on the London metals market. Aluminum is especially vulnerable to the slowdown in the construction and automobile manufacturing industries in the United States.
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Prices for copper and copper alloys fell  ; 2.7%. Copper prices corrected themselves after their strong growth in the previous three months& mdash; especially in April, when they surged  ; 12.0%& mdash; and in anticipation of a copper surplus in  ; 2007. Prices for precious metal basic manufactured shapes dropped  ; 7.9%.
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Prices for pulp and paper products declined  ; 2.0%, their third consecutive monthly decline. The index for newsprint and other printing paper reached its lowest level in  ; 38  ; months. Weak American demand for newsprint had a negative effect on prices.
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The drop in the Industrial Product Price Index was eased by higher prices for petroleum and coal products, which rose  ; 2.7% after three robust monthly increases. The continuing low level of international petroleum inventories,

combined with forecasts of excess demand, maintained upward pressure on prices for petroleum products. If the prices for petroleum and coal products had been excluded, the IPPI would have declined  ; 0.9% instead of  ; 0.5%.
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IPPI: Primary metals continue to lead the 12-month change
The IPPI rose  ; 3.0% from May  ; 2006  ; to May  ; 2007  ; and the index continued to slow for a second month. The IPPI was pushed up by rising prices for primary metals and, to a lesser extent, by higher prices for chemical products, petroleum and coal products, meat, fish and dairy products, and fruit, vegetables and feed products.
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The 12-month IPPI excluding petroleum and coal grew at a slower pace than in previous months. If the prices for petroleum and coal products had been excluded, the increase in the IPPI compared to May  ; 2006  ; would have been the same, namely  ; 3%.
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Primary metal prices were up  ; 10.9% compared to May  ; 2006, nearly half the rate of increase posted in April. Most of the year-over-year increase came from higher prices for nickel products, which rose  ; 132.1%. Prices remained high, primarily because of very low inventories, the result of demand largely exceeding the pace of production. On the other hand, the prices for aluminum and copper products were down  ; 9.8% and  ; 7.3%, respectively.
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The annual rate of growth in the IPPI was slightly diminished by lower prices for lumber and other wood products (-4.5%) and motor vehicles (-1.0%).
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RMPI: Mineral fuel prices decline and non-ferrous metal prices rise
The prices for raw materials declined  ; 0.2% in May, their first drop after three consecutive monthly increases. The RMPI was pulled down by lower prices for mineral fuels and ferrous materials. Increased prices for non-ferrous metals tempered the decline in the total index for raw materials.
Mineral fuels fell  ; 1.2% owing to a  ; 1.5% drop in the price for crude oil. Without mineral fuels, the RMPI would have risen  ; 0.7% from April, rather than declining  ; 0.2%.
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Prices for ferrous materials dropped  ; 5.6%. In particular, the prices for iron and steel wastes fell  ; 6.8% because of weak demand from the auto sector in the United States.
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A  ; 2.2% increase in non-ferrous metal prices dampened the decrease in the Raw Materials Price Index. In particular, radioactive concentrates and zinc concentrates posted gains of  ; 6.8% and  ; 6.6%, respectively.
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On a 12-month basis, prices for raw materials rose  ; 1.9% in May, down sharply from  ; 8.0% in April. An  ; 11.8% drop for mineral fuels put a brake on the growth of the prices for raw materials. Without mineral fuels, the RMPI would have increased  ; 17.0% instead of  ; 1.9%.
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Non-ferrous metals accounted for most of the 12-month increase, with prices rising  ; 29.7%, mainly on the strength of year-over-year increases in the prices for radioactive concentrates and concentrates of lead, nickel and zinc.
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Prices were also up over the previous year in the case of wood (+13.1%), animals and animal products (+7.2%), vegetable products (+15.4%) and ferrous materials (+6.0%).
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Impact of the exchange rate
The value of the Canadian dollar against the U.S. dollar rose  ; 3.6% from April to May. Without the effect of the exchange rate, the IPPI would have increased by  ; 0.5% instead of declining by  ; 0.5%.
On a 12-month basis, the value of the Canadian dollar rose  ; 1.3% against the U.S. dollar.
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If the impact of the exchange rate had been excluded, producer prices would have risen  ; 3.3% instead of  ; 3.0% between May  ; 2006  ; and May  ; 2007.
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Prices for intermediate goods post

first decline after seven consecutive monthly increases
Prices for intermediate goods fell  ; 0.5% between April and May, their first decline after seven consecutive monthly increases.
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The drop in prices was broad-based, affecting most products except petroleum and coal products and chemical products. The major contributors to the decline were primary metal products, pulp and paper products, lumber and other wood products, and motor vehicles.
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Producers of intermediate goods received  ; 4.1% more for their products in May than in May  ; 2006. The majority of the increase came from primary metal products and, to a lesser extent, chemical products, fruit, vegetables and feed products, meat, fish and dairy products, petroleum and coal products, metal fabricated products, and pulp and paper products.
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On the other hand, prices for lumber, motor vehicles and electrical and communication products slowed the year-over-year increase.
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Prices for finished products pulled down by motor vehicle prices
From April to May, prices for finished products fell  ; 0.5% for a second consecutive month as a result of a decrease in prices for motor vehicles, a sector that is more sensitive to exchange rate changes.
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While the decline in finished products was broad-based across the range of products, few products made a significant contribution other than motor vehicles and other transportation equipment. The decrease in finished product prices was partly offset by higher prices for petroleum and coal products.
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Since May  ; 2006, prices for finished products have risen  ; 1.2%. Higher prices were observed for petroleum products, meat, fish and dairy products, tobacco products, chemical products, fruit, vegetables and feed products, and beverages. The increase in prices for finished goods was slowed by lower prices for motor vehicles and machinery and equipment.