| Actual | Previous | Revised | |
|---|---|---|---|
| IPPI - M/M | 0.1% | -0.8% | -0.6% |
| IPPI - Y/Y | -1.8% | 1.4% | 1.6% |
| Raw Materials Price Index - M/M | -1.7% | -0.4% | -0.3% |
| Raw Materials Price Index - Y/Y | -16.5% | -5.2% | -5.0% |
Highlights
The industrial product price index (IPPI) for Canada edged up 0.1 percent in March after declining 0.6 percent in February, leaving the 12-month index 1.8 percent below its previous-year level. Excluding energy and petroleum products, the IPPI rose 0.4 percent on the month but was down 0.1 percent year-over-year.
Prices increased in 15 of 21 categories on the month. Against the backdrop of price hikes from several North American steel mills in March and early April, primary ferrous metal product prices rose 4.3 percent on the month. Among other notable price gains were motorized and recreational vehicles (0.6 percent), and meat, fish and dairy products (1.1 percent). On the downside, energy and petroleum fell 2.7 percent on the month and 13.4 percent year-over-year. Prices for softwood lumber dropped 8.1 percent amid high interest rates and a weakening housing market both in Canada and the US. Softwood lumber prices plunged 59.4 percent year-over-year.
The raw materials price index (RMPI) decreased a further 1.7 percent in March after declining 0.3 percent in January, for a 12-month drop of 16.5 percent after a 5.0 percent decline the previous month. Four of six categories recorded lower prices, including a 3.3 percent contraction in crude energy, which fell 26.3 percent from a year earlier. The RMPI excluding crude energy products was down 0.6 percent on the month and 8.8 percent year-over-year.
At the retail level, inflation pressures also eased on a year-over-year basis in March, with the CPI rising 4.3 percent, down from 5.2 percent in February, the lowest 12-month rate since August 2021.
These two inflation reports should encourage the Bank of Canada to stay on pause to continue to assess the impact of its previous rate hikes.
Prices increased in 15 of 21 categories on the month. Against the backdrop of price hikes from several North American steel mills in March and early April, primary ferrous metal product prices rose 4.3 percent on the month. Among other notable price gains were motorized and recreational vehicles (0.6 percent), and meat, fish and dairy products (1.1 percent). On the downside, energy and petroleum fell 2.7 percent on the month and 13.4 percent year-over-year. Prices for softwood lumber dropped 8.1 percent amid high interest rates and a weakening housing market both in Canada and the US. Softwood lumber prices plunged 59.4 percent year-over-year.
The raw materials price index (RMPI) decreased a further 1.7 percent in March after declining 0.3 percent in January, for a 12-month drop of 16.5 percent after a 5.0 percent decline the previous month. Four of six categories recorded lower prices, including a 3.3 percent contraction in crude energy, which fell 26.3 percent from a year earlier. The RMPI excluding crude energy products was down 0.6 percent on the month and 8.8 percent year-over-year.
At the retail level, inflation pressures also eased on a year-over-year basis in March, with the CPI rising 4.3 percent, down from 5.2 percent in February, the lowest 12-month rate since August 2021.
These two inflation reports should encourage the Bank of Canada to stay on pause to continue to assess the impact of its previous rate hikes.
Definition
The Industrial Product Price Index (IPPI) reflects the prices that producers in Canada receive as the goods leave the plant gate. 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. The report also contains a measure of domestic producers' raw material costs (RMPI) which can be seen as a very loose leading indicator of the IPPI.
Description
The IPPI reflects the prices that Canadian producers receive when goods leave the factory gate, that is, what producers receive for their output. This index is similar to the United Kingdom's producer output index. The index includes prices for major commodities sold by manufacturers, but it excludes indirect taxes and items such as transportation and wholesale and retail costs. The index is affected by the foreign exchange rate of the Canadian dollar versus the U.S. dollar, and each month its impact is noted. The RMPI reflects the prices paid by Canadian manufacturers for key raw materials, either domestically or in world markets. It is published simultaneously with the IPPI and, like that index, has a base year of 1997 and is subject to revisions for six months. This index is analogous to the producer input price index published in the United Kingdom.
The IPPI and RMPI measure prices at the producer level before they are passed along to consumers. Since these indexes measure prices of consumer goods and capital equipment, a portion of the inflation at the producer level gets passed through to the consumer price index (CPI). By tracking price pressures in the pipeline, investors can anticipate inflationary consequences in coming months.
While the CPI is the price index with the most impact in setting interest rates, the PPI provides significant information earlier in the production process. As a starting point, interest rates have an"inflation premium" and components for risk factors. A lender will want the money paid back from a loan to at least have the same purchasing power as when loaned. The interest rate at a minimum equals the inflation rate to maintain purchasing power and this generally is based on the CPI. Changes in inflation lead to changes in interest rates and, in turn, in equity prices.
The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to manufacturers increase, businesses are faced with either charging higher prices or they taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace.
The IPPI and RMPI measure prices at the producer level before they are passed along to consumers. Since these indexes measure prices of consumer goods and capital equipment, a portion of the inflation at the producer level gets passed through to the consumer price index (CPI). By tracking price pressures in the pipeline, investors can anticipate inflationary consequences in coming months.
While the CPI is the price index with the most impact in setting interest rates, the PPI provides significant information earlier in the production process. As a starting point, interest rates have an"inflation premium" and components for risk factors. A lender will want the money paid back from a loan to at least have the same purchasing power as when loaned. The interest rate at a minimum equals the inflation rate to maintain purchasing power and this generally is based on the CPI. Changes in inflation lead to changes in interest rates and, in turn, in equity prices.
The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to manufacturers increase, businesses are faced with either charging higher prices or they taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace.
