Canada Industrial Product Price Index Declines

By MDM Staff

January 29, 2010

More about: Canada, Economy

Raw Materials Price Index also declines in December, Statistics Canada reports.

In December, Canada's Industrial Product Price Index (IPPI) and the Raw Materials Price Index (RMPI) fell 0.1% and 1.7% respectively, pulled down by lower petroleum prices, according to Statistics Canada. The IPPI edged down 0.1% after the 0.9% upturn in November. The movement of the index has remained relatively stable since May 2009.

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In December, petroleum and coal prices (-1.4%) contributed the most to the decline in the IPPI, while rising prices for primary metal products (+1.2%) tempered the decline in the IPPI.

Excluding petroleum and coal prices, the IPPI remained unchanged, despite the increase in prices for primary metal products. The 0.5% appreciation of the Canadian dollar in relation to the US dollar contributed to a price decrease for a number of products, including motor vehicles and other transport equipment (-0.2%).

Some Canadian producers who export their products to the United States are generally paid in prices set in US dollars. Consequently, the relative strength of the Canadian dollar in relation to the US dollar had the effect of reducing the corresponding prices in Canadian dollars. If the exchange rate used to convert these prices had remained unchanged, the IPPI would have registered no change, instead of declining 0.1%.

Year-over-year, the IPPI fell 0.8% in December, its tenth consecutive decrease. The decline was much smaller than the 2.9% drop observed in November.

The IPPI was mainly pulled down by the prices for motor vehicles and other transportation equipment (-9.1%). Also contributing to the decline, but to a lesser extent, were pulp and paper products (-10.8%), metal fabricated products (-5.3%), electrical and communication products (-5.2%) and chemical products (-2.7%).

On the other hand, rising prices for petroleum and coal products (+24.8%) and primary metal products (+12.0%) moderated the year-over-year decline of the IPPI. After 12 straight declines, these two product groups posted 2 consecutive increases, with a substantial increase in December.

Year-over-year, prices for products excluding petroleum and coal fell 3%, compared with respective declines of 4.7% and 3.6% in October and November.

Since December 2008, the Canadian dollar appreciated 17.1% in relation to its US counterpart, and if the direct effect of the exchange rate had been excluded, the IPPI would have risen 3.0% instead of declining 0.8%.

Raw Materials Price Index

The Raw Materials Price Index (RMPI) fell 1.7% in December after two consecutive months of moderate growth. Despite December's decline, the RMPI still continued the upward trend begun in January 2009.

In December, the RMPI was pulled down by declining prices for mineral fuels, particularly crude oil (-4.9%). December's decrease of crude oil prices had been preceded by two consecutive increases in October (+5.9%) and November (+2.0%).

The 2.8% rise in prices for non-ferrous metals tempered the decline in the RMPI. Non-ferrous metals registered a fifth consecutive increase, leaving the index 36.6% higher than its level in January 2009. With the exception of declines for radioactive concentrates and precious metals, other metals registered higher prices driven by strong demand. In particular, zinc concentrates (+5.8%) and copper concentrates (+3.2%) contributed the most to the increase in prices for non-ferrous metals.

Excluding mineral fuels, the RMPI posted an increase of 1.1% and continued the upward trend maintained throughout 2009.

From December 2008 to December 2009, raw material prices rose 26.7% as a result of significant price increases for mineral fuels (+57.9%) and non-ferrous metals (+39.3%). Apart from these two groups, all others registered a decline.

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