| Actual | Previous | |
|---|---|---|
| IPPI - M/M | -0.5% | -0.8% |
| IPPI - Y/Y | 1.2% | 2.0% |
| Raw Materials Price Index - M/M | -0.4% | -3.0% |
| Raw Materials Price Index - Y/Y | -2.8% | -3.6% |
Highlights
Wholesale prices in Canada, as measured by the Industrial Product Price Index (IPPI), declined for the second straight month down 0.5 percent month over month in May but up 1.2 percent on an annual basis. This follows a 0.8 percent monthly drop and a 2.0 percent year-over-year rise in April.
The IPPI contracted by 0.3 percent excluding energy and petroleum products, after a 0.5 percent decline in April. Core IPPI is up 2.6 percent from May 2024 (compared to a 3.6 percent jump on an annual basis in April).
On a monthly basis, the decline in the May IPPI increase was due to a 1.9 percent drop in prices for energy and petroleum products, with the cost of refined petroleum energy products falling especially diesel fuel (-4.8%). Prices for lumber and other wood products also saw a significant decline (-6.0 percent) on a monthly basis, due to an 8.8 percent plunge in softwood lumber prices.
Statistics Canada did not include commentary about the impact of the U.S. dollar on the IPPI's decline.
Of note, the report said the rise in copper prices was partly due to the thaw in trade tensions between the United States and China in May, which led to speculation of an increase in global demand.
Additionally, [u]ncertainty surrounding global trade and geopolitical tensions drove up prices for gold over the 12 months ending in May, Statscan said.
Raw materials' prices fell 0.4 percent month-over-month in May and 2.8 percent year-over-year. This after a 3 percent monthly decline and 3.6 percent y/y decrease in April. Excluding crude energy products, prices of raw materials are up 1.6 percent in May following a 0.3 percent dip in April.
The IPPI contracted by 0.3 percent excluding energy and petroleum products, after a 0.5 percent decline in April. Core IPPI is up 2.6 percent from May 2024 (compared to a 3.6 percent jump on an annual basis in April).
On a monthly basis, the decline in the May IPPI increase was due to a 1.9 percent drop in prices for energy and petroleum products, with the cost of refined petroleum energy products falling especially diesel fuel (-4.8%). Prices for lumber and other wood products also saw a significant decline (-6.0 percent) on a monthly basis, due to an 8.8 percent plunge in softwood lumber prices.
Statistics Canada did not include commentary about the impact of the U.S. dollar on the IPPI's decline.
Of note, the report said the rise in copper prices was partly due to the thaw in trade tensions between the United States and China in May, which led to speculation of an increase in global demand.
Additionally, [u]ncertainty surrounding global trade and geopolitical tensions drove up prices for gold over the 12 months ending in May, Statscan said.
Raw materials' prices fell 0.4 percent month-over-month in May and 2.8 percent year-over-year. This after a 3 percent monthly decline and 3.6 percent y/y decrease in April. Excluding crude energy products, prices of raw materials are up 1.6 percent in May following a 0.3 percent dip in April.
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.
