Tuesday, October 30, 2007

Industrial product and raw materials price indexes

In September, prices for manufactured products and raw materials continued their downward movement, despite the strong increase in energy prices.

From August to September, the prices charged by manufacturers, as measured by the Industrial Product Price Index (IPPI), fell 0.9%, the same rate as in August. The IPPI registered a fifth consecutive monthly decrease since the historical peak reached in April 2007. The reduction in the index essentially represents a decrease in prices for motor vehicles, primary metal products, and pulp and paper products. However, a jump in petroleum and coal prices slowed the decline of the IPPI.

On a 12-month basis, the IPPI remained stable with a slight increase of 0.1%, following a 0.6% decline observed in August. Increases in the prices for petroleum and coal products, and for fruit, vegetables and feed products were offset by declines in the prices for motor vehicles and other transportation equipment, primary metal products, and pulp and paper products.

The exchange rate, reflecting the ongoing effect of a strong Canadian dollar in relation to its US counterpart, also played an important role in the price declines. 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. If the exchange rate used to convert these prices had remained unchanged from the previous month, the IPPI would have remained unchanged rather than declining 0.9% from August and, on a 12-month basis, the IPPI would have risen 2.4% rather than 0.1%.

Note to readers The 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 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. 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) fell 0.9% from August to September, a second consecutive monthly decrease for this index after the record level reached in July. In September, the RMPI was pulled down mainly by falling prices for non-ferrous metals, although this decline was tempered by rising prices for mineral fuels and vegetable products.

Compared with September 2006, raw materials cost plants 9.1% more. The increase in the index was caused mainly by higher prices for mineral fuels, non-ferrous metals and vegetable products.

In September, the IPPI was 113.6 (1997=100), down from August's revised level of 114.6. The RMPI was 174.6 (1997=100), down from August's revised level of 176.1.

IPPI: Decline in industrial prices index tempered by petroleum and coal products

Month over month, manufacturers' prices were pulled down mainly by falling prices for motor vehicles and other transportation equipment, primary metal products, and pulp and paper products. Price reductions were noted for most products, with price increases limited to petroleum and coal products, and fruit, vegetables and feed products.

In September, prices for motor vehicles fell 1.9% in conjunction with several factors, including the strong appreciation of the Canadian dollar against its US counterpart, as well as the rebates offered by manufacturers in order to liquidate inventories in anticipation of the arrival of new models.

Prices for primary metal products declined 1.2% in September, their fifth consecutive monthly decrease. Declines were noted for aluminum products (-3.2%), iron and steel products (-0.8%), and copper and copper alloy products (-1.8%). Metal prices were sensitive to reduced economic activity in North America, especially in residential construction, and were also affected by high inventory levels. On the other hand, declining prices for primary metal products were moderated by higher prices for nickel products, which rose 3.5%. This rise in nickel prices follows three steep monthly declines. Despite September's increase, the price index for nickel fell 47.4% from the historical peak reached in March 2007. As in the case of other metals, the nickel industry is still feeling the effects of high inventories and weak demand.

Prices for pulp and paper products fell 1.5% from August. The price index reached its lowest level since February 2004. Prices are undergoing the combined effect of an appreciating Canadian dollar, conditions in the forest industry, and weak demand for newsprint.

Prices for petroleum and coal products rose 1.7% in September after dropping 2.6% in August. Movements in energy prices change direction from month to month and are highly sensitive to world events. Prices for petroleum and coal products in September were 5.9% lower than the historical peak reached in July 2006. If the prices for petroleum and coal had been excluded, the IPPI would have decreased 1.2% instead of 0.9%, registering a sixth consecutive monthly decline.

IPPI: 12-month change leaves prices unchanged

The IPPI edged up 0.1% from September 2006 to September 2007, following two consecutive declines in July and August. Lower prices for motor vehicles and other transportation equipment offset higher prices for petroleum and coal products.

Motor vehicle prices fell 5.2%, a sixth consecutive decline. Prices for primary metals fell 3.8%. This drop is comparable to the 12-month change observed in August, and is the third consecutive year-over-year decline. Decreases were observed for iron and steel products (-3.9%), aluminum products (-6.7%), nickel products (-7.3%), and copper and copper alloy products (-4.8%).

Price reductions were also observed for pulp and paper products (-4.5%), lumber and other wood products (-1.9%), and electrical and communication products (-3.1%).

The drop in the IPPI was moderated mainly by prices for petroleum and coal, which rose 10.7% following three consecutive year-over-year declines. If petroleum and coal had been excluded, the IPPI would have fallen 1.1% instead of edging up 0.1%. Among other price increases, prices for fruit, vegetables and feed rose 5.7%, and prices for tobacco and tobacco products jumped 13.3%.

RMPI: Non-ferrous metals continue to decline

Prices for raw materials fell 0.9% in September, a second consecutive monthly decline. The RMPI was pulled down by the steep drop in prices for non-ferrous metals, and animals and animal products. However, higher prices for mineral fuels and vegetable products partially offset the monthly decline.

Non-ferrous metals prices tumbled 8.2%. While the decline was fairly general among metals, most of the decrease was caused by a drop of 18.6% in radioactive concentrates, and 14.3% in zinc concentrates.

Prices for animals and animal products declined 0.9%, especially owing to lower prices for hogs for slaughter, which fell 10.9% because supply was at a very high level. Lower prices were also observed for wood, more specifically, logs and bolts (-1.6%).

Prices for mineral fuels rose 1.1% in a change of direction from the 2.4% decrease observed in August. This rise is attributable to a tightening world market and lower inventory levels. If mineral fuels had been excluded, the RMPI would have fallen 2.7% from August instead of declining 0.9%.

Prices for vegetable products increased 6.5%, mainly because of prices for grains (+12.9%) and oilseeds (+7.0%). Wheat prices reached a historical level with a rise of 17.0%, owing to strong global demand and unfavourable weather conditions in Australia, Europe and the United States.

On a 12-month basis, raw materials prices rose 9.1% in September, a growth rate exceeding those observed in the previous four months. Raw materials prices were mainly propelled by price increases for mineral fuels, non-ferrous metals and vegetable products. Mineral fuels rose 8.9% on the strength of a 12.2% year-over-year increase in the price for crude oil. Without mineral fuels, the RMPI would have risen 9.5% instead of 9.1%.

Prices for non-ferrous metals jumped 12.3%, mainly because of year-over-year increases in the prices for radioactive concentrates (+64.3%) and lead concentrates (+118.3%).

Prices for vegetable products were up 30.1% from the previous year, especially for grains (+54.8%) and oilseeds (+55.4%), owing to a disequilibrium between global supply and demand.

Prices for intermediate goods continue to decline for a fifth consecutive month

From August to September, prices for intermediate goods fell 0.8%. This was their fifth straight month-over-month decline, although it was smaller than the 1.2% drop observed in August. The reduction in prices was widespread across product categories. The biggest contributors to the decrease were primary metal products, pulp and paper products, motor vehicles, as well as lumber and other wood products.

Prices for intermediate goods rose 0.3% from September 2006 to September 2007, following a 0.3% decline observed in August. Most of the increase was due to petroleum and coal products, and fruit, vegetables and feed products.

However, the year-over-year increase of the intermediate goods index was slowed by lower prices for primary metal products, pulp and paper products, motor vehicles and electrical and communication products.

Prices for finished products pulled down by lower prices for motor vehicles

From August to September, prices for finished products fell 0.8%, led by prices for motor vehicles. The finished products index registered a sixth consecutive month-over-month decline. Few products contributed significantly to the change in the index. Apart from motor vehicles, slight decreases were observed for electrical and communication products, machinery and equipment, and chemical products.

Since September 2006, prices for finished products have declined 0.4%, a smaller decrease than those observed in the previous two months. Prices were down for motor vehicles, machinery and equipment, and electrical and communication products. The index's decline was moderated by higher prices for petroleum and coal products, tobacco and tobacco products, fruit, vegetables and feed products, chemical products, and beverages.

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 September 2007 issue of Industry Price Indexes (62-011-XWE, free) will soon be available.

The industrial product and raw material price indexes for October will be released on November 29.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Client Services (613-951-9606; fax: 613-951-1539; prices-prix@statcan.ca), or Danielle Gouin (613-951-3375; danielle.gouin@statcan.ca), Prices Division.

Industrial product price indexes
(1997=100)
	Relative importance	September 2006	August 2007r	September 2007p	September 2006 to September 2007	August to September 2007
					% change
Industrial product price index (IPPI)	100.00	113.5	114.6	113.6	0.1	-0.9
IPPI excluding petroleum and coal products	94.32	108.3	108.4	107.1	-1.1	-1.2
Aggregation by commodities
Meat, fish and dairy products	5.78	109.0	110.1	109.5	0.5	-0.5
Fruit, vegetables, feeds and other food products	5.99	103.8	108.9	109.7	5.7	0.7
Beverages	1.57	122.8	125.6	125.5	2.2	-0.1
Tobacco and tobacco products	0.63	192.8	218.4	218.4	13.3	0.0
Rubber, leather and plastic fabricated products	3.30	118.4	116.7	116.1	-1.9	-0.5
Textile products	1.58	100.4	99.5	99.4	-1.0	-0.1
Knitted products and clothing	1.51	105.0	105.0	104.9	-0.1	-0.1
Lumber and other wood products	6.30	85.2	84.6	83.6	-1.9	-1.2
Furniture and fixtures	1.59	118.9	120.2	120.2	1.1	0.0
Pulp and paper products	7.23	106.1	102.8	101.3	-4.5	-1.5
Printing and publishing	1.70	115.1	116.7	116.0	0.8	-0.6
Primary metal products	7.80	142.0	138.3	136.6	-3.8	-1.2
Metal fabricated products	4.11	123.9	124.4	124.1	0.2	-0.2
Machinery and equipment	5.48	106.8	105.3	104.4	-2.2	-0.9
Motor vehicles and other transport equipment	22.16	91.5	88.4	86.7	-5.2	-1.9
Electrical and communications products	5.77	93.5	91.6	90.6	-3.1	-1.1
Non-metallic mineral products	1.98	120.0	122.8	122.9	2.4	0.1
Petroleum and coal products1	5.68	210.1	228.7	232.6	10.7	1.7
Chemicals and chemical products	7.07	122.6	124.8	124.1	1.2	-0.6
Miscellaneous manufactured products	2.40	112.5	113.0	113.0	0.4	0.0
Miscellaneous non-manufactured products	0.38	265.9	476.4	397.8	49.6	-16.5
Intermediate goods2	60.14	117.7	119.1	118.1	0.3	-0.8
First-stage intermediate goods3	7.71	145.0	151.1	146.9	1.3	-2.8
Second-stage intermediate goods4	52.43	113.6	114.3	113.7	0.1	-0.5
Finished goods5	39.86	107.2	107.7	106.8	-0.4	-0.8
Finished foods and feeds	8.50	114.1	115.8	115.7	1.4	-0.1
Capital equipment	11.73	99.6	97.7	96.3	-3.3	-1.4
All other finished goods	19.63	108.8	110.3	109.3	0.5	-0.9
r revised p preliminary 1. This index is estimated for the current month. 2. Intermediate goods are goods used principally to produce other goods. 3. First-stage intermediate goods are items used most frequently to produce other intermediate goods. 4. Second-stage intermediate goods are items most commonly used to produce final goods. 5. Finished goods are goods most commonly used for immediate consumption or for capital investment.

Raw materials price indexes
(1997=100)
	Relative importance	September 2006	August 2007r	September 2007p	September 2006 to September 2007	August to September 2007
					% change
Raw materials price index (RMPI)	100.00	160.0	176.1	174.6	9.1	-0.9
Mineral fuels	35.16	252.0	271.3	274.4	8.9	1.1
Vegetable products	10.28	81.1	99.1	105.5	30.1	6.5
Animals and animal products	20.30	103.9	105.4	104.4	0.5	-0.9
Wood	15.60	80.0	85.2	84.3	5.4	-1.1
Ferrous materials	3.36	123.2	131.7	132.8	7.8	0.8
Non-ferrous metals	12.93	200.3	245.1	225.0	12.3	-8.2
Non-metallic minerals	2.38	141.1	148.8	148.8	5.5	0.0
RMPI excluding mineral fuels	64.84	117.4	132.1	128.5	9.5	-2.7
r revised p preliminary

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