Canada’s Industrial Product Price Index declined 0.3% in October, continuing its downward trend that began in September 2008. The Raw Materials Price Index rose 2.5%, mainly as a result of higher prices for crude oil.
The IPPI was mainly pulled down by the strength of the Canadian dollar, which appreciated 2.6% in October in relation to the U.S. dollar. Some Canadian producers who export their products to the United States are generally paid in prices set in U.S. dollars. Consequently, the relative weakness of the U.S. dollar in relation to the Canadian 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 risen 0.4% instead of declining 0.3%.
The change in the exchange rate had the effect of lowering the value of motor vehicles and other transport equipment (-1.5%), which was the largest contributor to the drop in the IPPI. Other smaller price decreases were observed for pulp and paper products, lumber and other wood products, electrical and communication products, and machinery and equipment.
However, the effect of the strong Canadian dollar was tempered by a 1.6% rise in prices for petroleum and coal products. This increase in petroleum and coal prices followed a 2.6% decline in September. Excluding petroleum and coal prices, the IPPI fell 0.5%, a larger drop than the 0.2% decline in September.
IPPI: 12-month Change
Year over year, the IPPI fell 6.3% in October compared with the same month a year earlier, marking a seventh consecutive year-over-year decline. Although slightly greater than the 6.0% drop in September, the decrease was similar to the average for the movements of the past five months.
The IPPI was pulled down mainly by the prices for petroleum and coal products (-20.0%) and, to a lesser degree, by prices for motor vehicles and other transport equipment (-6.7%) and chemical products (-10.9%).
Prices for products excluding petroleum and coal declined 4.5%, the largest of five consecutive declines, reinforcing the downward trend.
Since October 2008, the Canadian dollar appreciated 12.3% in relation to its US counterpart, and if the direct effect of the exchange rate had been excluded, the IPPI would have fallen 3.4% instead of 6.3%.
Raw Materials Price Index
The Raw Materials Price Index (RMPI) increased 2.5% in October, following a 1.0% decline in September. Raw material prices are continuing their upward trend that began in January 2009.
The volatile movements of the RMPI since July are mainly a result of significant fluctuations in prices for mineral fuels, especially crude oil. Prices for crude oil rose 5.9% in October, following a 1.6% drop in September.
The 2.0% increase in prices for non-ferrous metals also contributed to the advance of the Raw Materials Price Index. Non-ferrous metals registered a third consecutive increase. Excluding mineral fuels, the RMPI posted zero growth in October, and the index has remained basically stable since May 2009.
From October 2008 to October 2009, raw material prices fell 7.6%, a much smaller decrease than the 21.4% year-over-year decline in September. The drop in raw material prices was mainly attributable to a 12.3% reduction for mineral fuels and, to a lesser extent, a 6.9% decrease in prices for animals and animal products. On the other hand, raw material prices were bolstered by higher prices for non-ferrous metals (12.4%).
