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The Daily. Wednesday, November 29, 2000

Industrial product and raw materials price indexes

Energy prices continued to influence the annual growth of both the Raw Materials Price Index (RMPI) and Industrial Product Price Index (IPPI) in October. A higher U.S. dollar also helped boost industrial prices.

Manufacturers' prices, as measured by the IPPI, gained 4.4% between October 1999 and October 2000. This represents an increase over September's advance of 3.9%, and goes against the decelerating trend in price growth that had generally taken place since February.

Rising petroleum and coal product prices accounted for nearly half the annual increase in October. If the impact of petroleum and coal product prices were excluded, industrial product prices would have increased 2.4% instead of 4.4%. Prices for paper and paper products and motor vehicles also contributed to the annual increase, while falling lumber prices had a dampening influence.

On a month-to-month basis, industrial prices gained 0.6% in October, as higher prices for motor vehicles and paper and paper products, which reflected in part a stronger U.S. dollar, were partly counterbalanced by lower primary metal product prices. Petroleum product prices did not have a significant impact on the monthly change.

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.

Manufacturers paid 20.4% more for their raw materials in October than they did in October 1999. This represents the largest annual increase since June, but remains well below the recent peak of 37.3% in February 2000. Once again, mineral fuels were at the forefront of this price increase, accompanied by more modest increases from all categories but ferrous materials, which lost ground.

On a month-to-month basis, the RMPI rose 0.5% in October, as higher prices for mineral fuels, animal and vegetable products were partly offset by lower non-ferrous metal prices.

Mineral fuel prices were at the heart of both monthly and annual increases in the RMPI. If mineral fuels were excluded, the index would have advanced only 4.1% instead of 20.4% on an annual basis. The rise in the monthly index would have been 0.2%.

The IPPI (1992=100) was 129.1 in October, up from its revised level of 128.3 in September. The RMPI (1992=100) rose to 150.5 in October from its revised level of 149.7 in September.

Exchange rate effect was significant

Between mid-September and mid-October, the value of the U.S. dollar strengthened noticeably against the Canadian dollar. This had the effect of pushing up prices of commodities quoted in U.S. dollars. The impact on the IPPI was such that if the exchange rate had remained unchanged the IPPI would have remained unchanged between September and October.

This effect is also evident in the 12-month change, where the exchange rate again pushed up the IPPI. Without the exchange rate effect, the IPPI would have increased by 3.8% rather than 4.4% between October 1999 and October 2000.

Motor vehicle prices are particularly susceptible to exchange rate fluctuations. This reflects the fact that most motor vehicles manufactured in Canada are shipped to the United States with prices quoted in U.S. dollars. In October, motor vehicle prices climbed 2.3% on a monthly basis and 2.4% on an annual basis, owing in large part to a stronger U.S. dollar.

Motor vehicle prices led monthly rise in finished goods

Manufacturers received 0.9% more for their finished goods in October than in September, the strongest monthly growth rate since March of this year. The autos, truck and other transport equipment category was responsible for the bulk of the increase.

On an annual basis, prices for finished goods rose 3.3% in October, reflecting rising prices for petroleum products as well as autos, trucks and other transport equipment.

"Finished goods" are 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. Much of the remainder is bought by consumers.

Input goods prices boosted by paper and petroleum prices

Stronger prices for paper and petroleum products boosted input prices on both a monthly and annual basis. Prices for intermediate goods gained 0.5% between September and October to stand 5.2% higher than in October 1999.

"Intermediate goods," sometimes called "input goods," are goods that are generally bought by other manufacturers to be further used in the production process (i.e., to make other goods).

Available on CANSIM: matrices 1870-1879.

The October 2000 issue of Industry price indexes (62-011-XPB, $22/$217) will be available in December.

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 indexes

(1992=100)

Raw materials price indexes

(1992=100)