MRO Magazine

Industrial product prices up 5.1% from year ago

Ottawa, ON - Between June and July of 2011, the Industrial Product Price Index (IPPI) declined 0.3% and the Raw Materials Price Index (RMPI) fell 1.2%, reports Statistics Canada. The largest contributors to the IPPI's decline were chemical...


Industry

September 5, 2011
By MRO Magazine
MRO Magazine

Industries

Ottawa, ON – Between June and July of 2011, the Industrial Product Price Index (IPPI) declined 0.3% and the Raw Materials Price Index (RMPI) fell 1.2%, reports Statistics Canada. The largest contributors to the IPPI’s decline were chemical products and motor vehicles, while mineral fuels were the major factor in the decrease of the RMPI.

The decrease of the IPPI in July was the third in three months and comparable to the declines of 0.2% in May and June. The July contraction was primarily a result of lower prices for chemicals and chemical products (-2.6%) and for motor vehicles and other transportation equipment (-1.3%). Pulp and paper products (-1.1%) also contributed to the decline.

The decline in chemical products in July was mainly attributable to the organic chemicals group (-8.8%), most of whose products were down. Lower production costs, market and competition conditions, and the strength of the Canadian dollar against the US dollar all played a significant role in the decline of chemical product prices. The decrease in motor vehicle prices (-1.3%) was primarily a result of a 2.2% rise in the value of the Canadian dollar relative to the US dollar.

Some Canadian producers who export their products are paid on the basis of 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. Without the impact of the exchange rate, the IPPI would have risen 0.2% instead of falling 0.3%.

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The decline in the IPPI in July was moderated by upward movements in primary metal products (+1.2%) and petroleum and coal products (+0.5%).

Excluding petroleum and coal products, the IPPI would have fallen 0.5% in July, following a 0.2% gain in June.

Increase in July comparable to the gains observed between March and June

 

The IPPI was up 5.1% in July 2011 compared with the same month a year earlier, which was similar to the rate of growth observed since March. Of the 21 major commodity aggregations, 14 advanced and six declined, much the same pattern as in June.

Compared with July 2010, the IPPI’s increase was driven mainly by higher prices for petroleum and coal products (+31.9%) and primary metal products (+13.6%).

Year over year, petroleum and coal products remained on an upward trend, posting gains since November 2009. The increase in July was the largest during this period of growth.

The largest contributors to the advance in primary metal products were precious metals, particularly silver and platinum (+77.1%), and precious metal basic manufactured shapes (+66.8%). Copper (+27.3%) and aluminum products (+6.8%) also contributed to the advance.

Chemical products (+9.3%) and fruits, vegetables and feeds (+7.2%) made smaller contributions to the year-over-year IPPI increase in July.

In July, the 9.1% year-over-year increase in the value of the Canadian dollar relative to the US dollar slowed the advance of the IPPI. Without the impact of the exchange rate, the IPPI would have risen 7.0% instead of 5.1%.

The year-over-year increase of the IPPI in July was moderated by lower prices for motor vehicles and other transportation equipment (-4.6%), pulp and paper products (-3.6%) and lumber and other wood products (-2.4%).

Excluding petroleum and coal prices, the year-over-year IPPI would have increased 2.0% in July, a slower growth rate than in June (+2.5%). This continues the upward trend that began in May 2010.

RMPI: Third consecutive monthly decline

 

The RMPI decreased by 1.2% in July, after falling 5.1% in May and 2.4% in June. The decline in July was the third straight monthly decrease.

The decline of the RMPI was led by mineral fuels (-2.2%). Crude oil fell 2.5% in July, following declines of 8.9% in May and 5.3% in June. Demand for crude petroleum was softened by uncertainties about global prospects for growth.

Vegetable products (-2.5%) and wood (-2.5%) also declined in July. Prices for grain, especially wheat (-9.7%), were pulled down by the events driving global demand, including the end of the ban on grain exports from Russia and the arrival of much-needed rain for North American and Asian crops. Wood prices were affected by an increase in the inventory of houses for sale in the United States, as housing sales fell for a third consecutive month.

The RMPI’s decline in July was slowed by higher prices for animals and animal products (+1.3%) and non-ferrous metals (+0.9%).

Excluding mineral fuels, the RMPI would have declined 0.1% in July, after rising 0.1% in June.

Compared with the same month a year earlier, the RMPI was up 19.4% in July, following advances of 25.6% in May and 23.1% in June. The main factors in the year-over-year increase in the RMPI in July were higher prices for mineral fuels (+22.2%), non-ferrous metals (+26.1%), vegetable products (+35.5%) and animals and animal products (+9.6%).

Year over year, excluding mineral fuels, the RMPI would have risen 16.9% in July compared with 19.0% in June.

Note to readers

 

All data in this release are seasonally unadjusted and usually subject to revision for a period of six months (for example, when the July index is released, the index for the previous January becomes final).

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 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, since 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, and it 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).

The Raw Materials Price Index (RMPI) reflects the prices paid by Canadian manufacturers for key raw materials. Many of those prices are set on the world market. However, as few prices are denominated in foreign currencies, their conversion into Canadian dollars has only a minor effect on the calculation of the RMPI.