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Industrial product and raw materials price indexes
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In October, prices for manufactured products fell for a sixth consecutive month, with price declines in almost all major product groups. Prices for raw materials rose slightly, led by crude oil.
From September to October, prices charged by manufacturers, as measured by the Industrial Product Price Index (IPPI), fell 1.1%, more steeply than the previous month (-0.8%). The IPPI registered its sixth straight monthly decrease since the historical peak reached in April 2007. The reduction in the index essentially represents a decrease in prices for motor vehicles and most other product categories except fruit, vegetables and feed products.
On a 12-month basis, the IPPI declined 1.0%, reinforcing the downward movement of prices. Declines in the prices for motor vehicles and other transportation equipment, primary metal products and pulp and paper products were much stronger than the increase in prices for petroleum and coal products.
The exchange rate, reflecting the ongoing effect of a strong Canadian dollar in relation to its US counterpart, played a major role in the price declines. If the exchange rate that is used to convert these prices had remained unchanged from the previous month, the IPPI would have risen 0.2% compared with September instead of dropping 1.1%, and on a 12-month basis, the IPPI would have risen 2.9% rather than falling 1.0%.
Note to readersThe Industrial Product Price Index (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 and paper products, and wood products. Determining the full effect of fluctuating exchange rates on the IPPI is a difficult analytical task. However, it should be noted that many prices collected to calculate the IPPI are quoted in US dollars and then converted into Canadian dollars. Therefore, a rise or fall in the value of the Canadian dollar against its US counterpart affects the IPPI. The Raw Materials Price Index (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. |
The Raw Materials Price Index (RMPI) rose 0.3% from September to October, a slight increase compared with the marked declines of the previous two months. In October, the RMPI was pushed up primarily by the rise in prices for crude oil and vegetable products, while declines in prices for animals and animal products, ferrous materials and wood moderated its rise.
Compared with October 2006, raw materials cost plants 12.5% more. The increase in the index was caused mainly by higher prices for mineral fuels and vegetable products.
In October, the IPPI was 112.4 (1997=100), down from September's revised level of 113.7. The RMPI was 175.2 (1997=100), up from September's revised level of 174.7.
IPPI: Sixth consecutive decline in industrial price index
Month over month, manufacturers' prices were pulled down mainly by the continuing decline of prices for motor vehicles and other transportation equipment. In addition to this product group, all others registered a decrease with the exception of fruit, vegetables and feed products.
In October, prices for motor vehicles fell 3.1%, owing largely to the strong appreciation of the Canadian dollar against its US counterpart. Manufacturers continued to offer rebates to liquidate old inventories, and some introduced new 2008 models. Prices of motor vehicles continued their downward trend that began in January 2007.
Prices for pulp and paper products fell 1.9% compared with September. In particular, prices for newsprint and other paper for printing fell 4.2%. The downward movement of pulp and paper products that began in March 2007 continued, with prices having fallen 8.3% since the peak reached in February 2007. In addition to overall conditions affecting the forest industry and weak demand for newsprint, prices in October were also affected by the appreciation of the Canadian dollar.
The decrease in prices for other manufacturing products contributed less to the drop in the IPPI, while their decline was related both to the strength of the Canadian dollar against its US counterpart and to excess supply. Prices for meat, fish and dairy products fell 1.7%, owing in particular to an excess supply of beef and pork products. Prices for lumber and other wood products fell 1.9%, led by the price for softwood lumber, which fell 3.3%, pulled down by the decrease in construction activity in the United States.
Price declines were also observed for electrical and communication products (-1.8%), petroleum and coal products (-0.6%), primary metal products (-0.7%) and machinery and equipment (-1.1%). Among primary metal products, prices for aluminum products fell 4.0% due to the depreciation of the US dollar, whereas on the world market the price for aluminum had risen 2.0%, affected by a decline in inventories.
Excluding the prices for petroleum and coal, the IPPI would have decreased 1.2% rather than 1.1%, registering a seventh consecutive monthly decline.
IPPI: 12-month change shows downward price trend strengthening
The IPPI fell 1.0% from October 2006 to October 2007, after posting a modest 0.2% increase in September and decreases in both July (-0.2%) and August (-0.6%). The 12-month decline in the value of the US dollar against its Canadian counterpart—a 13.6% drop from October 2006 to October 2007—had a major effect on how prices evolved in the IPPI. Lower prices for motor vehicles, primary metal products and pulp and paper products more than offset higher prices for petroleum and coal products.
Motor vehicle prices fell 8.6%, their seventh consecutive year-over-year decline. Prices for primary metals fell 8.1%. This drop exceeds the 3.9% declines observed in both August and September and is the steepest on record. Prices decreased 20.0% for nickel products, 13.2% for aluminum products, 8.9% for copper and copper alloy products and 2.8% for iron and steel products. Prices for pulp and paper products fell 6.6%, led by the price for newsprint and other paper for printing (-18.3%).
Price reductions were also observed for electrical and communication products (-4.9%), machinery and equipment (-3.5%) and lumber and other wood products (-3.0%).
The drop in the IPPI was moderated mainly by prices for petroleum and coal products, which rose 17.4%, a second consecutive increase. If petroleum and coal had been excluded, the IPPI would have fallen 2.8% instead of 1.0%. Among other price increases, prices for fruit, vegetables and feed products rose 5.1% and prices for tobacco and tobacco products jumped 13.3%; however, their relative contribution was more modest.
RMPI: Prices for raw materials up slightly
Prices for raw materials rose 0.3% in October after two consecutive monthly declines. The RMPI was pushed up by higher crude oil prices, which registered a second consecutive monthly increase, and by the continuing strength in prices for vegetable products. However, decreases in the prices for animal products, ferrous materials and wood moderated the advance of the RMPI.
Prices for mineral fuels rose 0.7%, the result of a 0.9% increase for crude oil. Since July 2007, the crude oil price index has remained at a high level compared with the first half of 2007. In October, the index was 16.3% higher than its average for the first six months of 2007. This increase is attributable to several factors, including geopolitical tensions on the international scene, excess demand for crude oil and lower inventories. If mineral fuels had been excluded, the RMPI would have declined 0.2% from September instead of rising 0.3%, and it would thus have registered a fifth consecutive decrease.
Prices for vegetable products rose 5.0%, following a 6.5% increase in September. Grain prices jumped 10.1%, led by prices for wheat (+16.7%) and barley (+13.5%). The price for wheat registered robust growth for a second consecutive month, pushing it to a historical peak in October, 81.7% higher than the average recorded in 2006. This boom in the price for wheat is the result of strong world demand and unfavourable weather conditions in Australia, Europe and the United States.
Prices for animals and animal products fell 2.1%, primarily owing to the prices for cattle and hogs for slaughter, which fell 7.9% and 9.5%, respectively, due to excess supply. Price declines were also observed for ferrous materials (-3.3%) and wood (-0.7%), especially logs and bolts, softwood (-1.0%).
On a 12-month basis, raw materials prices rose 12.5% in October, the strongest growth rate since July 2006. Raw materials prices were mainly propelled by price increases for mineral fuels and, to a lesser extent, vegetable products. Mineral fuels jumped 22.6% on the strength of a 29.0% year-over-year increase in the price for crude oil. Without mineral fuels, the RMPI would have risen by 4.0% instead of 12.5%.
All major categories of raw materials posted gains except the prices for animal products, which declined 1.9% compared with October 2006. Prices were down for slaughter animals, especially cattle (-10.0%) and hogs (-12.7%).
Prices for intermediate goods fall, a similar decline to September's
From September to October, prices for intermediate goods fell 0.8%, the same rate as in September and their sixth straight month-over-month decline. The reduction in prices affected almost all products. The biggest contributors to the decrease were pulp and paper products, motor vehicles, lumber and other wood products, primary metal products and meat, fish and dairy products.
Prices for intermediate goods declined 0.4% from October 2006 to October 2007, their second decrease for 2007. Most of the decrease was due to primary metal products, pulp and paper products and motor vehicles.
On the other hand, increases in the prices for petroleum and coal products and for fruit, vegetables and feed products tempered the year-over-year decline in the intermediate goods index.
Prices for finished products pulled down by lower prices for motor vehicles
From September to October, prices for finished products fell 1.7%, the largest decline since November 2004. The finished products index registered a seventh straight month-over-month decline, with a drop of 5.1% in October compared with the peak attained in March 2007. Most of the decrease is attributable to lower prices for motor vehicles and, to a lesser extent, petroleum and coal products, machinery and equipment, and electrical and communication products. Apart from a slight increase in prices for fruit, vegetables and feed products, no other product group was up compared with the previous month.
Since October 2006, prices for finished products have fallen 1.9%, a stronger decrease than the 0.3% decline recorded in September. Prices for finished products were mainly pulled down by motor vehicle prices. On the other hand, the reduction in prices for finished products was slowed by an increase in prices for petroleum and coal products, tobacco products and food products.
Available on CANSIM: tables 329-0038 to 329-0049 and 330-0006.
Definitions, data sources and methods: survey numbers, including related surveys, 2306 and 2318.
The October 2007 issue of Industry Price Indexes (62-011-XWE, free) will soon be available.
The industrial product and raw material price indexes for November 2007 will be released on January 4, 2008.
For more information, or to inquire about the concepts, methods or data quality of this release, contact Client Services (613-951-9606, fax: 613-951-1539, prices-prix@statcan.gc.ca) or Danielle Gouin (613-951-3375, danielle.gouin@statcan.gc.ca), Prices Division.
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