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The Daily. Tuesday, August 29, 2000

Industrial product and raw materials price indexes

Slower growth of energy costs pushed down the 12-month rise in prices received by manufacturers to its lowest level since November 1999, and curbed the annual increase in raw material prices.

Prices manufacturers received for industrial products, as measured by the Industrial Product Price Index (IPPI), increased 4.2% from July 1999 to July 2000. This compares with rates of 5.6% in June, 5.9% in May and the recent peak of 6.1% in registered February.

More than half of July's annual increase was the result of a 42.8% increase in prices for petroleum and coal products, which was down from a 53.3% rise in June compared with June 1999. If the impact of petroleum and coal product prices were excluded, industrial product prices would have increased 2.0% instead of 4.2% in July.

On a month-to-month basis, industrial prices edged up 0.2% in July, as falling lumber prices were overshadowed by rising prices for paper and paper products, motor vehicles and primary metal products. July was the first month in some time when petroleum prices had no perceptible influence over the monthly IPPI. Excluding petroleum and coal from the index would have left index growth at 0.2%, the same as when the category is included.

Note to readers This release combines the Industrial Product Price Index (IPPI) and the Raw Materials Price Index (RMPI), which were previously reported in separate releases. These releases were combined to provide a consolidated view of industrial prices. The IPPI reflects the prices that producers in Canada receive as the goods leave the plant gate. It does not reflect what the consumer pays. Unlike the Consumer Price Index, the IPPI excludes indirect taxes and all the costs that occur between the time a good leaves the plant and the time the final user takes possession of it, including the transportation, wholesale, and retail costs. Canadian producers export many goods. They often quote their prices in foreign currencies, particularly for motor vehicles, pulp, paper, and wood products. Therefore, a rise or fall in the value of the Canadian dollar against its U.S. counterpart affects the IPPI. The RMPI reflects the prices paid by Canadian manufacturers for key raw materials. Many of these prices are set in a world market. Unlike the IPPI, the RMPI includes goods not produced in Canada.

Prices that manufacturers paid for raw materials, as measured by the Raw Materials Price Index (RMPI), were 19.9% higher than in July 1999, primarily owing to higher mineral fuels and animal product prices. This is a deceleration from the 28.3% rise in June.

On a month-to-month basis, raw material prices declined 2.4% in July, as weaker crude oil, log and cattle prices more than offset stronger hog and non-ferrous metal prices.

If mineral fuels were excluded, the annual increase in the RMPI would have been only 5.5% instead of 19.9%. If mineral fuels were excluded from the monthly calculation, the drop in the RMPI would have been less dramatic, slipping -0.4% instead of -2.4%.

The IPPI (1992=100) was 127.7 in July, up from its revised level of 127.5 in June. The RMPI (1992=100) slipped to 141.4 in July from its revised level of 144.9 in June.

Crude oil and lumber prices fall, hog and pulp prices continue to rise

Crude oil prices fell 5.4% in July compared with June, as Saudi Arabia, the world's top exporter, announced plans to boost output. Petroleum and coal product prices, as measured in the IPPI, posted only a marginal increase in July, +0.1%.

The lumber market continued its downward trend; prices dropped a further 2.7%, as U.S. housing starts declined further in July. Prices were also down for logs, their raw material counterpart.

On the IPPI side, pulp prices strengthened further in July (+3.5%), reflecting robust worldwide demand.

Following a brief downturn in June, the raw material price for hogs recovered in July, rising 2.7%, but cattle prices dropped for a third month (-2.6%). Low grain prices have reduced feed costs for cattle and prompted U.S. farmers to enlarge their herds.

Prices for finished goods virtually stable

"Finished goods" are considered to be goods generally purchased for the purpose of either consumption or investment. Most of the foods and feeds category ends up in the hands of consumers. Most capital goods are equipment and machinery generally bought as investment by companies, government agencies, or governments. Of the remainder, much is bought by consumers.

Selling prices received by manufacturers for finished goods were virtually unchanged in July, up 0.1% from June. While prices for miscellaneous manufactured products and the finished goods portion of petroleum and coal products lost ground in July, the declines were more than offset by higher prices for autos, trucks and other transportation equipment.

On an annual basis, prices for finished goods were up 2.9% in July, decelerating from June's increase of 3.8%.

Slight decline in prices for goods destined for further processing

"Intermediate goods," sometimes referred to as "input goods," are generally bought by other manufacturers and used to make other goods. Intermediate goods can be further broken down into two general categories that differ by the amounts of capital and labour used. The first group of intermediate goods is more closely tied to the raw material component, using less capital and labour. As a result, its prices tend to follow raw materials prices more closely. The second group usually has a higher capital/labour content and less price volatility.

Paper and paper products were the primary source of growth in intermediate good prices, which edged up 0.2% from June to July. Weaker lumber prices provided most of the downward pressure.

Prices for goods destined for the manufacturing process rose 5.2% compared with July 1999, as higher prices for petroleum and coal products and paper and paper products overshadowed falling lumber prices.

Available on CANSIM: matrices 1870-1879.

The July 2000 issue of Industry price indexes (62-011-XPB, $22/$217) will be available in September. See How to order products.

For more information, or to enquire about the concepts, methods or data quality of this release, contact the Client Services Unit (613-951-3350; fax: 613-951-1539; infounit@statcan.gc.ca), Prices Division.

Industrial product price index

(1992=100)

Raw materials price index

(1992=100)