Canadian Industrial Product Price Index Down 0.7% in December

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The IPPI decreased in December after posting a 0.3 percent increase in November. It was the IPPI's largest decline since the 0.9 percent decrease in June 2010. The downturn in the index was largely a result of lower prices for petroleum and coal products (-3.7 percent) and primary metal products (-2.4 percent). Chemical products also contributed, though to a much lesser extent, with a 0.7 percent decline.

The decrease in petroleum and coal product prices in December was primarily the result of declines in diesel fuel (-5.2 percent) and gasoline (-2.8 percent). North American demand for petroleum products was weaker in December, partly because of milder weather. In addition, high inventories in Organisation for Economic Co-operation and Development countries and excess capacity in oil-producing countries contributed to the decline in oil prices.

Primary metals prices (-2.4 percent) declined in December for a fourth consecutive month, pulled downward mainly by lower demand for precious metals. Prices decreased for precious metal basic manufactured shapes (-12.7 percent), gold in primary forms (-4.0 percent) and silver and platinum (-6.4 percent). Further price reductions were observed for primary aluminum products (-5.7 percent) and primary copper products (-6.1 percent). Aluminum prices were affected by global excess supply, while weaker demand pushed copper prices downward.

Some product groups experienced increases in December, particularly motor vehicles and other transportation equipment, lumber and other wood products, and machinery and equipment, which all rose 0.3 percent. These price increases were moderated slightly by the 0.2 percent appreciation of the Canadian dollar relative to the US dollar.

Some Canadian producers who export their products are generally paid on the basis of prices set in US dollars. Consequently, the strength of the Canadian dollar in relation to the US dollar in December had the effect of reducing the corresponding prices in Canadian dollars. Without the impact of the exchange rate, the IPPI would have declined 0.6 percent instead of 0.7 percent.

The IPPI excluding petroleum and coal prices products declined 0.3 percent in December, following a 0.1 percent increase in November.

IPPI 12-month change
The IPPI was up 2.8 percent in December compared with the same month a year earlier. The growth in prices continued to slow for the third straight month since the 5.5 percent peak in September. Of the 21 major commodity aggregations, 17 were up in December, compared with 19 in October and 18 in November.

Relative to December 2010, the IPPI was pushed upward mainly by higher prices for petroleum and coal products (+12.8 percent). More moderate contributions were made by chemical products (+4.8 percent), motor vehicles and other transportation equipment (+2.3 percent), fruit, vegetables and feeds (+3.2 percent) and meat, fish and dairy products (+3.1 percent).

Year over year, the growth of petroleum and coal product prices continued to slow, declining steadily to 12.8 percent in December. The 2011 high was 31.9 percent in July.

Similarly, year over year, the IPPI excluding petroleum and coal products increased 1.4 percent from December 2010. This was a weaker increase than that seen in March (+2.8 percent), the highest level reached in 2011.

The advance of the IPPI in December relative to the same month a year earlier was moderated by a decrease in primary metal products (-5.2 percent). This second consecutive decline for this product group was much larger than the 0.8 percent decrease observed in November. The largest contributors to the decline in metals in December were lower prices for copper and copper alloy products (-15.0 percent), nickel products (-23.5 percent) and aluminum products (-8.1 percent).

In December, the 1.6 percent year-over-year decline in the value of the Canadian dollar relative to the US dollar had an upward effect on the IPPI. Without the impact of the exchange rate, the IPPI would have risen 2.4 percent instead of 2.8 percent.

Raw Materials Price Index
In December, the RMPI declined 2.4 percent, following a 3.8 percent increase in November. The decline in prices was led by mineral fuels (-3.0 percent) and non-ferrous metals (-3.3 percent). Smaller contributions were made by vegetable products (-2.3 percent) and animals and animal products (-0.8 percent).

Within mineral fuels, crude oil declined 3.2 percent, a substantial change from the 8.9 percent increase in November.

In December, other than lead and nickel concentrates, all non-ferrous metal groups declined, notably copper concentrates (-6.4 percent) and precious metals (-4.6 percent).

The main factors in the December price decrease for vegetable products were wheat (-5.9 percent) and corn (-4.7 percent). The excess wheat supply in the United States was the result of favourable weather and the high level of seeded acreage. The decline in corn prices was largely a result of weaker demand for feed and biodiesel manufacturing.

The RMPI excluding mineral fuels was down 1.7 percent in December, a larger decrease than the 0.3 percent observed in November. This was the fourth consecutive decline of the index.

Relative to December 2010, the RMPI rose 4.7 percent, continuing the slowdown in growth that has prevailed since May (+25.6 percent), when the index posted its highest growth rate for 2011. The main contributors to the RMPI's year-over-year advance in December were higher prices for mineral fuels (+10.8 percent) and animals and animal products (+14.5 percent). The RMPI's increase was moderated by non-ferrous metals (-11.9 percent), which had a third consecutive decline.

Year over year, the RMPI excluding mineral fuels was down 0.6 percent in December, its first decrease since the 3.3 percent decline observed in October 2009.