Canadian Price Indexes Fall in August

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September 30, 2008

Canadian Price Indexes Fall in August

Source: Statistics Canada

In August, Canadian price indexes for manufactured goods and raw materials declined 0.2% and 7.7% respectively from July. The strong decrease in prices for petroleum products brought to a halt the uninterrupted monthly growth observed since the end of 2007.

The monthly decline of 0.2% in the Industrial Product Price Index (IPPI) in August was largely attributable to a 6.0% drop in prices for petroleum and coal products. Excluding petroleum and coal products, the prices of other industrial goods increased 0.8%, a rate of growth comparable to the average rate recorded in the previous two months.

Also contributing to the decline in August was a 3.1% drop in prices for primary metal products, as a result of lower global demand.

In contrast, the increases observed in August mainly came from groups of industrial goods that are sensitive to the effect of the exchange rate, in particular, motor vehicles and other transport equipment.

In fact, the Canadian dollar lost 4.1% of its value in relation to the US dollar in August, after edging up 0.4% in July. The relative weakness of the Canadian dollar against its US counterpart exerted upward pressure on prices overall, partly because some manufacturers set their prices in US dollars. If the exchange rate used to convert these prices had remained unchanged, the IPPI would have fallen 1.3% compared with July, instead of declining 0.2%.

12-Month Change

Year over year, the IPPI rose 8.1% in August, up from the 7.3% increase posted in July, and continuing its growth for a fifth consecutive month. Prices for petroleum and coal products increased 46.2% compared with August 2007 and were the main factor behind the rise in the IPPI.

If petroleum and coal products were excluded, the IPPI would have increased 3.8%, which would have been the largest growth rate since April 2007. Among the other products, chemical products rose 15.4%, pushed up by fertilizers and chemical products related to petroleum and synthetic resins.

Over 12 months, the Canadian dollar rose 0.4% against the US dollar, and if the direct effect of the exchange rate were excluded, the IPPI would have risen 8.2% rather than 8.1%.

Raw Materials Drop

The Raw Materials Price Index (RMPI) posted a strong 7.7% decline in August, ending a string of 10 consecutive monthly increases. This change in direction for the RMPI was mainly due to the strong 11.3% contraction in the prices for mineral fuels, following 5 straight monthly increases. If mineral fuels were excluded, the RMPI would have fallen 1.8% after a brief upturn of 0.5% in July.

Compared with August 2007, raw materials cost plants 22.7% more, which represented a second slowdown in the growth of prices since the 32.1% increase in June. The rise in the index was mainly attributable to higher prices for mineral fuels and vegetable products, while non-ferrous metals and wood slowed its advance.

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