Canadian Industrial Product Price Index Flat in February

In February, the Canadian Industrial Product Price Index (IPPI) remained at the same level as in January, following three consecutive monthly advances. The IPPI is still on an upward trend, which began after it bottomed out in October 2009. The Raw Materials Price Index (RMPI) rose 0.4%, led by higher prices for mineral fuels.

Prices of motor vehicles and other transportation equipment were up 0.9% in February, largely due to the 1.3% depreciation of the Canadian dollar relative to the US dollar. The IPPI came under upward pressure from other products that are more sensitive to exchange rate movements, including lumber and other wood products (+1.7%) and pulp and paper products (+1.0%).

Some Canadian producers who export their products to the United States are generally paid on the basis of prices set in US dollars. Consequently, the relative weakness of the Canadian dollar in relation to the American dollar had the effect of increasing the corresponding prices in Canadian dollars. If the exchange rate used to convert those prices had remained unchanged, the IPPI would have declined 0.3% instead of remaining unchanged.

The effect of the Canadian dollar's depreciation against the US currency was offset by lower prices for primary metal products (-2.1%) and petroleum and coal products (-1.2%).

Excluding petroleum and coal prices, the IPPI continued on a slight upward trend with a 0.2% advance in February.

12-month change
The IPPI was down 0.6% in February compared with the same month a year earlier. Since March 2009, the index's year-over-year change has been a series of decreases. However, the last three declines were smaller than the preceding ones, particularly in July 2009, when the largest drop was recorded (-7.1%).

The 12-month decrease in the IPPI was led by motor vehicles and other transportation equipment (-9.8%). Other factors also contributing to the decline were pulp and paper products (-9.1%), electrical and communication products (-5.8%), metal fabricated products (-4.7%) and machinery and equipment (-4.1%).

On the other hand, rising prices for petroleum and coal products (+25.4%) and primary metal products (+8.8%) moderated the year-over-year decline in the IPPI.

Between February 2009 and February 2010, prices for products excluding petroleum and coal were down 2.9%, a slightly larger year-over-year decline than in January. It was the ninth successive decrease for this product group.

Since February 2009, the Canadian dollar rose 17.8% in value relative to its US counterpart, and if the direct effect of the exchange rate had been excluded, the IPPI would have increased 3.3% instead of declining 0.6%.

Raw Materials Price Index
The RMPI climbed 0.4% in February after a 3.4% advance in January, continuing the upward trend that began in January 2009.

In February, the RMPI was pushed upward mainly by rising prices for mineral fuels, particularly crude oil (+2.1%). Crude oil prices increase 5.6% in January. Prices for ferrous materials and animals and animal products made smaller contributions to the February advance of the RMPI.

The upward movement in raw materials prices was slowed by falling non-ferrous metals prices (-4.6%), which declined following six consecutive monthly gains. Most of the products in this group posted declines, especially zinc (-9.8%) and lead concentrates (-8.7%). Metals prices were sensitive, among other reasons, to weaker demand from Asia. Excluding mineral fuels, the RMPI would have declined 1.1%, following four consecutive monthly increases.

From February 2009 to February 2010, raw materials prices increased 27.8%, as a result of sharply higher prices for mineral fuels (+58.0%) and non-ferrous metals (+34.0%). All other groups posted declines.

Source: Statistics Canada