Canada Oct. Industrial Product and Raw Materials Prices (Text)

The following is the text of the industrial product and raw material prices report as reported by Statistics Canada.

Between September and October, the Industrial Product Price Index (IPPI) and the Raw Materials Price Index (RMPI) declined 0.1% and 1.2% respectively, as a result of a sharp decrease in the price of metals.

Prices for industrial goods decline slightly

The IPPI edged down in October, following increases of 0.4% in August and 0.5% in September. The decline in the index was mainly attributable to primary metal products (-4.4%).

The decrease in the demand for primary metals was more pronounced in October, particularly for precious metals. Prices were down 16.3% for silver and platinum, 12.5% for precious metal basic manufactured shapes, and 5.0% for gold and gold alloy in primary forms.

All other metal groups except iron and steel products posted substantial declines. Prices for primary copper products (-12.7%), primary aluminum products (-3.9%) and primary nickel products (-5.8%) were particularly sensitive to the global economic slowdown.

The decrease in the IPPI in October was moderated by higher prices for motor vehicles (+1.2%), petroleum and coal (+0.6%) and pulp and paper products (+0.7%).

In October, the decline of the Canadian dollar relative to the US dollar continued for a third straight month. The decrease in the exchange rate (-1.7%) led to higher prices, especially for motor vehicles and pulp and paper products.

Some Canadian producers who export their products are generally paid on the basis of prices set in US dollars. Consequently, the weakness of the Canadian dollar in relation to the US dollar in October had the effect of increasing the corresponding prices in Canadian dollars. Without the impact of the exchange rate, the IPPI would have declined 0.5% instead of edging down 0.1%.

Excluding petroleum and coal prices, the IPPI declined 0.2% in October following a 0.6% increase in September.

12-month change in the IPPI: Slower growth in October

The IPPI rose 4.7% in October compared with the same month a year earlier, a slightly lower growth rate than those observed from June to September. Of the 21 major commodity aggregations, 19 were up in October compared with 14 in September.

Relative to October 2010, the IPPI was pushed upward mainly by higher prices for petroleum and coal products (+25.2%). Chemical products (+7.5%), and fruit, vegetables and feeds (+5.2%) also contributed to the advance.

Year over year, petroleum and coal products continued their upward trend, having posted increases since November 2009. The growth of prices in October was slower than in September (+30.2%), but remained comparable with the rates observed since March.

Year over year, excluding petroleum and coal prices, the IPPI rose 2.3% in October, comparable to the average year-over-year growth rate for the first 10 months of 2011.

Year over year, primary metal products had little impact overall on the growth of the IPPI in October. Increases in precious metals and iron and steel products were almost completely offset by declines in nickel, copper and aluminum products.

Raw Materials Price Index: Pushed upward by non-ferrous metals

The RMPI declined 1.2% in October after increasing 1.4% in September. The index was pulled downward mainly by the prices of non-ferrous metals (-8.8%) and vegetable products (-3.5%).

Prices decreased in October for all non-ferrous metals except radioactive concentrates, which rose 2.8%. The largest contributors were copper and nickel concentrates (-12.0%), non-ferrous metal scrap (-13.4%), precious metals (-7.9%) and zinc concentrates (-9.2%).

The declines in vegetable products in October were observed for grains (-2.3%), unrefined sugar (-13.0%) and natural rubber (-6.8%). Increased supply affected the price of corn (-8.1%) and unrefined sugar, while the decline in natural rubber prices was attributable to lower demand in Asia.

In October, the decline in the RMPI was moderated by increases in animal products (+3.4%) and mineral fuels (+0.7%).

Prices for hogs for slaughter rose sharply (+11.3%) as a result of heavy demand, both domestic and foreign, and limited supply. Prices for cattle and calves for slaughter increased 4.4%.

Crude oil prices were very volatile in October, resulting in a slight increase of 0.9%. Crude oil inventories were down in the United States, and prospects for economic growth were better.

Excluding mineral fuels, the RMPI would have declined 2.9% in October following a 1.0% decrease in September.

Compared with the same month a year earlier, the RMPI rose 11.3% in October, a lower growth rate than in September (+15.1%). The main factors in the year-over-year increase were higher prices for mineral fuels (+19.2%), animals and animal products (+14.8%) and vegetable products (+12.7%). Non-ferrous metals (-4.2%) moderated the growth of the RMPI, posting their first decline since September 2009.

Year over year, excluding mineral fuels, the RMPI rose 4.7% in October. This marked the fourth consecutive decline in the growth rate since the 19.4% increase 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.

To contact the reporter on this story: Ilan Kolet in Ottawa at ikolet@bloomberg.net

To contact the editor responsible for this story: Marco Babic at mbabic@bloomberg.net

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