Canada. Industrial Product Price Index (IPPI) and Raw Materials Price Index (RMPI) both rise

In January, the Industrial Product Price Index (IPPI) and the Raw Materials Price Index (RMPI) rose 0.3% and 3.3% respectively, led by a rebound in petroleum prices.

The IPPI posted a 0.3% gain in January, larger than the 0.1% increase in December and smaller than the 1.0% increase in November. It was the third consecutive monthly advance of the IPPI.

In January, petroleum and coal prices rebounded 4.4%, after declining 1.4% in December. Higher prices in this commodity group were the biggest contributor to the IPPI increase, followed by primary metal products (+1.7%).

Excluding petroleum and coal prices, the IPPI edged down 0.1% after two consecutive monthly gains. The increase in primary metal products was offset mainly by a decline in motor vehicles and other transportation equipment (-0.7%). The 1.1% appreciation of the Canadian dollar against the US dollar contributed to a price decrease for a number of products, including motor vehicles.

Some Canadian producers who export their products to the United States are generally paid in prices set in US dollars. Consequently, the strength of the Canadian dollar in relation to the US 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 0.6% instead of 0.3%.

Canadian producers export many goods. They often indicate their prices in foreign currencies, especially in US dollars, which are then converted into Canadian dollars. In particular, this is the case for motor vehicles, pulp, paper and wood products. Therefore, a rise or fall in the value of the Canadian dollar against its US counterpart affects the IPPI. But the conversion into Canadian dollars only reflects how respondents provide their prices. Moreover, this is not a measure that takes into account the full effect of exchange rates, as that is a more difficult analytical task.

The conversion of prices received in US dollars is based on the average monthly exchange rate (noon spot rate) established by the Bank of Canada, which is available on CANSIM in table 176-0064 (series v37426). Monthly and annual variations in the exchange rate, as described in the text, are calculated according to the indirect quotation of the exchange rate (for example, CAN$1 = US$X).

12-month change: The appreciation of the Canadian dollar is still the main factor in the IPPI decline

The IPPI was down 0.3% in January compared with the same month a year earlier. The index has been posting consecutive year-over-year decreases since March 2009. The largest of those declines occurred in July 2009 (-7.1%).

Over the last 12 months, the IPPI was pulled down primarily by lower prices for motor vehicles and other transportation equipment (-9.5%). Also contributing to the decline, but to a lesser extent, were pulp and paper products (-9.9%), electrical and communication products (-5.5%), metal fabricated products (-5.3%) and machinery and equipment (-4.1%).

On the other hand, rising prices for petroleum and coal products (+28.4%) and primary metal products (+13.4%) moderated the year-over-year decline in the IPPI.

Between January 2009 and January 2010, prices for products excluding petroleum and coal were down 2.8%, the same rate as the year-over-year decline registered in December. It is the eighth consecutive decrease for this group of products.

Since January 2009, the Canadian dollar has gained 17.6% in value against its US counterpart, and, if the direct effect of the exchange rate had been excluded, the IPPI would have risen 3.6% instead of declining 0.3%.

Raw Materials Price Index: Upswing following a one-month decline

The Raw Materials Price Index (RMPI) rebounded 3.3% in January, after a 1.7% decline in December, continuing the upward trend that began in January 2009.

In January, the RMPI was pushed up by rising prices for mineral fuels, particularly crude oil (+5.6%). Crude oil prices had dropped 4.9% in December.

Prices for non-ferrous metals and animals and animal products made smaller contributions to the January increase of the RMPI. Non-ferrous metals registered a sixth consecutive increase. Apart from declines for radioactive concentrates and precious metals, prices for non-ferrous metals were driven higher by strong demand. In particular, copper concentrates (+6.0%), zinc concentrates (+3.0%) and nickel concentrates (+6.9%) were the biggest factors driving the increase in non-ferrous metals prices.

Excluding mineral fuels, the RMPI posted a 1.2% gain in January, nearly the same as December's advance (+1.1%), and continued the upward trend that prevailed throughout 2009.

From January 2009 to January 2010, raw materials prices jumped 29.3% as a result of sharply higher prices for mineral fuels (+62.3%) and non-ferrous metals (+39.6%). All other groups posted declines.

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