MRO Magazine

Industrial Product Price Index declines for the third consecutive month


Industry

November 30, 2015
By Bill Roebuck
Bill Roebuck

Ottawa – The Industrial Product Price Index (IPPI) declined 0.5% in October 2015, mainly as a result of lower prices for motorized and recreational vehicles. The Raw Materials Price Index (RMPI) increased 0.4%, led by higher prices for crude energy products.

Industrial Product Price Index, monthly change

The IPPI declined for the third consecutive month, falling 0.5% in October. Among the 21 major commodity groups, 2 were up, 18 were down and 1 was unchanged.

The decline in the IPPI in October was mainly led by lower prices for motorized and recreational vehicles (-1.1%), specifically passenger cars and light trucks (-1.1%), motor vehicle engines and motor vehicle parts (-0.8%) and aircraft (-1.5%). Lower prices for motorized and recreational vehicles were closely linked to the appreciation of the Canadian dollar relative to the US dollar. Using the average monthly exchange rate, the Canadian dollar appreciated for the first time since May 2015 against the US dollar, posting the second largest increase since August 2012.

Energy and petroleum products (-1.0%) also had a large impact on the decline in the IPPI in October, primarily because of lower prices for motor gasoline (-1.8%), and, to a lesser extent, heavy fuel oils (-0.5%). Moderating the decline in this commodity group were higher prices for diesel fuel (+2.4%) as well as light fuel oils (+0.3%). While motor gasoline and diesel fuel are both refined petroleum products with common uses, they are distinct commodities, with different market drivers and seasonal influences. Motor gasoline demand typically peaks in the spring and summer, while diesel fuel tends to peak in the fall and winter as it is also used as a heating fuel. The IPPI excluding energy and petroleum products declined 0.4%.

Also contributing to the decline in the IPPI were meat, fish and dairy products (-0.6%) and primary non-ferrous metal products (-0.5%).

Lower prices for fresh and frozen beef and veal (-4.0%) were the main reason for the decrease in meat, fish, and dairy products, while higher prices for fresh and frozen poultry of all types (+3.2%) helped moderate the decline.

Unwrought aluminum and aluminum alloys (-3.8%) and unwrought copper and copper alloys (-3.9%) were the main reasons for the decrease in primary non-ferrous metal products, while higher prices for unwrought precious metals and precious metal alloys (+2.0%) moderated the decline.

Some IPPI prices are reported in US dollars and are converted to Canadian dollars using the average monthly exchange rate. Consequently, any change in the value of the Canadian dollar relative to the US dollar will affect the level of the index. From September to October, the Canadian dollar appreciated 1.5% relative to the US dollar. If the exchange rate had remained constant, the IPPI would have declined 0.2% instead of decreasing 0.5%.

Industrial Product Price Index, 12-month change

The IPPI declined 0.4% over the 12-month period ending in October, after decreasing 0.4% in September.

The main reason for the year-over-year decline in the IPPI in October was energy and petroleum products (-21.4%), specifically lower prices for motor gasoline (-18.7%), diesel fuel (-20.4%), light fuel oils (-20.2%) and heavy fuel oils (-43.0%). The IPPI excluding energy and petroleum products increased 3.6% in October.

Also contributing to the decline in the IPPI was chemicals and chemical products (-3.7%). The decrease was led by lower prices for petrochemicals (-26.3%), while higher prices for ammonia and chemical fertilizers (+10.4%) and chemical products, not elsewhere classified (+5.9%) moderated the decline in this commodity group.

Year over year, higher prices for motorized and recreational vehicles (+10.9%), specifically passenger cars and light trucks (+11.7%), motor vehicle engines and motor vehicle parts (+7.0%) as well as aircraft (+17.5%), largely moderated the year-over-year decline in the IPPI.

Higher prices for meat, fish, and dairy products (+3.9%), specifically higher prices for fresh and frozen pork (+8.8%), fresh and frozen beef and veal (+3.7%) as well as processed meat products, other meats and animal by-products (+4.8%), also helped moderate the year-over-year decline in the IPPI.

Raw Materials Price Index, monthly change

The RMPI rose 0.4% in October, after increasing 2.4% in September. Of the six major commodity groups, three were up and three were down.

The main reason for the increase in the RMPI were higher prices for crude energy products (+2.4%), specifically conventional crude oil (+2.5%). The RMPI excluding crude energy products declined 0.8%.

To a lesser extent, metal ores, concentrates and scrap (+0.7%) also contributed to the increase.

Largely moderating the increase in the RMPI in October were lower prices for animals and animal products (-2.8%), specifically cattle and calves (-7.6%), which posted its largest decline since June 2007.

Raw Materials Price Index, 12-month change

The RMPI declined 17.5% over the 12-month period ending in October.

Lower prices for crude energy products (-32.4%) were largely responsible for the decrease, specifically conventional crude oil (-33.1%). The RMPI excluding crude energy products declined 3.1% from the same month last year.

Prices for animals and animal products (-6.0%) also contributed to the decline in the RMPI, specifically hogs (-18.5%) and cattle and calves (-3.3%), which posted its first year-over-year decrease since March 2013.

Also contributing to the year-over-year decline in the RMPI was metal ores, concentrates and scrap (-6.3%).