MRO Magazine

Ongoing rise of industrial product prices stalls in May

Ottawa, ON -- Statistics Canada reports that monthly prices for manufactured goods at the factory gate were unchang...


Industry

July 13, 2005
By MRO Magazine
MRO Magazine

Ottawa, ON — Statistics Canada reports that monthly prices for manufactured goods at the factory gate were unchanged in May 2005, following five consecutive months of increases. Raw materials prices were down in May from April as crude oil prices declined for a second straight month.

Prices charged by manufacturers, as measured by the Industrial Product Price Index (IPPI), were unchanged from April to May. Lower prices for petroleum products and lumber and other wood products were offset by higher prices for motor vehicles and other transport equipment, meat, fish and dairy products, primary metal products, chemical products and electrical and communication products.

The 12-month change in the IPPI was down 0.3% in May, a significant drop from the 1.5% increase in April.

The Raw Materials Price Index (RMPI) fell 3.1% from April to May, following a 1.5% decrease the previous month. There were price decreases in mineral fuels, wood products as well as ferrous materials.

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Compared to May of last year, raw materials cost factories 7.0% more, a significant decline from the 12-month increase of 13.5% for April.

In May, the IPPI (1997=100) stood at 111.4, unchanged from its revised level in April. The RMPI (1997=100) reached 138.0, down from a revised level of 142.4 in April.

IPPI: Lower prices for petroleum and lumber products
On a month-over-month basis, manufacturers’ prices were unchanged in May following a 0.4% increase in April.

Petroleum and coal products prices decreased 3.4% compared to April as gasoline and fuel oil prices declined for the first time in four months. If petroleum and coal product prices had been excluded, the IPPI would have increased 0.4% rather than remaining unchanged.

Lumber and other wood products were down 2.6% as a result of a slowdown in construction activity and lower demand.

<I>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 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 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.</I>

Prices for motor vehicles and other transport equipment and electrical and communication products increased 1.0% and 0.6% respectively, mainly because of a weaker Canadian dollar.

Meat, fish and dairy products were up 1.0% as higher prices were reported for pork and beef products. Primary metal products increased 0.6% as prices for nickel products were up by 13.5%. Price increases were also observed for chemical products and machinery and equipment.

<B>IPPI: Motor vehicles and lumber products are the major factors in the 12-month change</B>

On a 12-month basis, the IPPI was down 0.3% in May. Motor vehicles and other transport equipment were down 6.2% from a year ago, the consequence of a stronger Canadian dollar.

Lumber and other wood products declined 15.0% from May 2004 to May 2005, as year-over-year price decreases were recorded for softwood lumber (-17.6%), particleboard (-42.1%) and softwood plywood excluding Douglas Fir (-38.0%).

There were also 12-month price declines for fruit, vegetable and feed products (-4.2%), meat, fish and dairy products (-3.7%), electrical and communication products (-2.0%) and pulp and paper products (-1.0%).

However, prices for petroleum and coal products rose 11.0% from May 2004, dampening the 12-month decrease. If petroleum and coal product prices had been excluded, the IPPI would have fallen 1.2% rather than decreasing 0.3% from a year ago.

Prices for primary metal products also increased, rising 8.1% from May 2004. Primary steel and primary nickel products were the major contributors to this annual increase.

Chemical products increased 5.3%, due to higher prices for organic industrial chemicals and synthetic resins. Year-over-year increases were also observed for metal fabricated products, rubber, leather and plastic fabricated products, non-metallic mineral products as well as furniture and fixtures.

<B>RMPI: Crude oil prices continue to push down the cost of raw materials</B>

On a monthly basis, raw materials prices fell 3.1% in May. Mineral fuels were down 6.0% compared to April, as crude oil prices decreased 7.2% due to higher levels of inventories and a slight decline in demand.

Ferrous materials decreased 3.3% from the previous month, as iron and steel scrap prices were down 6.5%. Prices for wood products, more specifically softwood logs and bolts, also decreased 1.7% in May.

Prices for non-ferrous metals were up 1.6%, mainly due to higher prices for radio-active concentrates as well as nickel concentrates. Prices for vegetable products also increased 1.2%, with higher prices observed for coffee, natural rubber and canola. Animals and animal products increased 0.3%, as prices for swine for slaughter were up 6.0% from the previous month.

On a 12-month basis, the price of raw materials rose 7.0% in May, down from the double-digit increases observed in the last 12 months. Mineral fuels were up 14.2% with crude oil prices rising 17.3%. If mineral fuels had been excluded, the RMPI would have only increased 0.4% instead of rising 7.0%.

Prices for non-ferrous metals rose 13.4%, mainly because of higher prices for radio-active concentrates, zinc, nickel, copper and lead concentrates. Higher prices were also observed for ferrous materials and non-metallic mineral products, which increased 18.7% and 7.9% respectively from a year ago.

Vegetable products were down 14.5% from May 2004, as prices were down for corn, wheat, soybeans and canola. Wood products also decreased 8.7% from a year ago. Animal and animal products prices were almost unchanged from a year ago (-0.1%). Lower prices for swine for slaughter were offset by higher prices of unprocessed whole milk.

<B>Impact of the exchange rate</B>

Between April and May, the value of the Canadian dollar fell 1.6% against the US dollar. As a result, if the impact of the exchange rate had been excluded, the IPPI would have declined 0.4% instead of remaining unchanged from April.

On a 12-month basis, the value of the Canadian dollar rose 9.8% against the US dollar. If the impact of the exchange rate had been excluded, producer prices would have risen 2.2% between May 2004 and May 2005, rather than their actual 0.3% decline.

Prices for intermediate goods decreased 0.2% from April. Lower prices for petroleum products and lumber products were the major contributors to the decrease.

Higher prices for primary metal products; motor vehicles; chemical products; fruit, vegetable and feed products; and electrical and communication products partially offset the monthly decrease.

Producers of intermediate goods received 1.2% more for their goods in May 2005 than in May 2004. Higher prices for petroleum products; primary metal products; chemical products; metal fabricated products; and rubber, leather and plastic products were mainly responsible for the annual increase.

These increases were partly offset by declining prices for lumber products; fruit, vegetable and feed products; motor vehicles; meat, fish and dairy products; and electrical and communication products.

<B>Finished goods prices increase</B>

On a monthly basis, prices for finishe
d goods were up 0.3% from April. Higher prices for motor vehicle; electrical and communication products; and meat, fish and dairy products were the main contributors to this increase.

Lower prices for petroleum and lumber products partly offset the monthly increase.

Compared with May 2004, prices for finished goods were down by 2.5%. Lower prices for motor vehicles; electrical and communication products; meat, fish and dairy products; and lumber products were the major contributors to the annual decline.

Higher prices for petroleum products; furniture and fixtures; chemical products; fruit, vegetable and feed products; and rubber, leather and plastic products partly offset the annual decrease.