Canadian Price Indexes Halt Rapid Declines in January

Canadian price indexes for manufactured goods declined slightly in January, while the index for raw materials rose 1.4%. The strong downward movement registered by these two indexes during the previous two months halted in January, with petroleum prices strengthening on world markets.
 
The Industrial Product Price Index (IPPI) decreased 0.1% in January, stabilizing after declines of 2.8% in November and 2.1% in December. Prices for petroleum and coal products increased 1.6%, after registering five substantial monthly declines in a row.
 
Excluding petroleum and coal products, the IPPI fell 0.2%, a third monthly decrease following declines of 0.6% in November and 0.4% in December. Of the 20 major groups, 12 posted a price decrease, notably motor vehicles and other transport equipment (-0.4%), pulp and paper products (-1.0%), and lumber and other wood products (-1.5%).
 
The Canadian dollar rose 0.7% against the U.S. dollar in January. The relative weakness of the US dollar in relation to the Canadian dollar had the effect of lowering their Canadian dollar equivalent prices. At a constant exchange rate, the IPPI would have risen 0.1% compared with December, instead of declining 0.1%.
 
12-month change
Year over year, the IPPI rose 1.2% in January, which marks a continuing deceleration in the growth of the index. This was the weakest advance in the index in 10 months. This slowing in the growth of the IPPI in January was mainly caused by a 28.4% drop in the prices for petroleum and coal products compared with a year ago, the largest annual decline since December 2001.
 
The prices for products other than petroleum and coal were up 5.0%, representing a third consecutive slowing in growth. Contributing the most to the increase in the IPPI were motor vehicles and other transport equipment, as well as pulp and paper products, pushed up in part by the depreciation of the Canadian dollar in relation to the U.S. dollar.
 
The Canadian dollar lost 17.5% of its value compared with January 2008, and if the direct effect of the exchange rate had been excluded, the IPPI would have declined 4.9% instead of increasing 1.2%.
 
Raw Materials Price Index
The Raw Materials Price Index (RMPI) posted a monthly increase of 1.4% in January, compared with a decline of 15.4% in December. Despite this rebound in prices, the level of the index remained 14.2% lower than in November 2008, owing to the size of December's decline. Excluding mineral fuels, the RMPI rebounded with a 0.6% increase.
 
From January 2008 to January 2009, raw materials continued and accelerated their downward movement, falling 31.6%, compared with December's decrease of 29.9%. The drop in raw material prices was attributable to the strong 48.5% decline for mineral fuels and, to a lesser extent, to decreases in prices for non-ferrous metals (-35.6%) and vegetable products (-12.0%).
 
Source: Statistics Canada