| Actual | Previous | |
|---|---|---|
| IPPI - M/M | 0.2% | 0.6% |
| IPPI - Y/Y | 4.1% | 2.2% |
| Raw Materials Price Index - M/M | 1.3% | -0.5% |
| Raw Materials Price Index - Y/Y | 9.1% | 2.0% |
Highlights
Wholesale prices in Canada, as measured by the Industrial Product Price Index (IPPI), increased for the third straight month up 0.2 percent month-over-month in December and +4.1 percent on an annual basis, following a 0.6 percent monthly rise and 2.2 percent year-over-year increase in November.
The strong U.S. dollar continues to fuel a lot of the IPPI's rise. According to StatsCan, given the value of the looney fell by 1.9 percent against the greenback from November to December,"[i]f the exchange rate for prices reported in U.S. dollars had remained constant from November to December, the IPPI would have decreased 0.1 percent month over month instead of increasing 0.2 percent."
Raw materials' prices jumped by 1.3 percent month-over-month in December and surged 9.1 percent year-over-year. This after rising by 0.5 percent and 2 percent, respectively, in November. Excluding crude energy products, prices of raw materials are up 1.6 percent in December following a 0.6 percent rise in November.
On a monthly basis, the slower pace of the December IPPI increase was mainly due to lower energy and petroleum products prices (-0.9 percent), with both finished motor gasoline (-1.3 percent) and diesel fuel (-0.7 percent) prices declining.
Excluding energy and petroleum products, the IPPI rose by 0.4 percent, after a 0.5 percent increase in November, and is up 5.1 percent from December 2023 (vs. +4 percent in November).
It is worth noting that the year-over-year jump in the December IPPI is due to a spike in prices for precious metals and alloys (+32.4 percent), which Statscan ascribed to safe haven demand by investors due to geopolitical uncertainty in 2024. As a result, this report will likely receive little attention from the Bank of Canada, with December CPI data already out showing a much slower 1.8 percent annual rise in consumer prices.
The strong U.S. dollar continues to fuel a lot of the IPPI's rise. According to StatsCan, given the value of the looney fell by 1.9 percent against the greenback from November to December,"[i]f the exchange rate for prices reported in U.S. dollars had remained constant from November to December, the IPPI would have decreased 0.1 percent month over month instead of increasing 0.2 percent."
Raw materials' prices jumped by 1.3 percent month-over-month in December and surged 9.1 percent year-over-year. This after rising by 0.5 percent and 2 percent, respectively, in November. Excluding crude energy products, prices of raw materials are up 1.6 percent in December following a 0.6 percent rise in November.
On a monthly basis, the slower pace of the December IPPI increase was mainly due to lower energy and petroleum products prices (-0.9 percent), with both finished motor gasoline (-1.3 percent) and diesel fuel (-0.7 percent) prices declining.
Excluding energy and petroleum products, the IPPI rose by 0.4 percent, after a 0.5 percent increase in November, and is up 5.1 percent from December 2023 (vs. +4 percent in November).
It is worth noting that the year-over-year jump in the December IPPI is due to a spike in prices for precious metals and alloys (+32.4 percent), which Statscan ascribed to safe haven demand by investors due to geopolitical uncertainty in 2024. As a result, this report will likely receive little attention from the Bank of Canada, with December CPI data already out showing a much slower 1.8 percent annual rise in consumer prices.
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.
