Canadian Producer Prices Dissected

July 30, 2008

Producer price inflation in June stemmed entirely from either higher oil prices or a softer Canadian dollar.  Total producer prices went up 1.3% between May and June.  0.7 percentage points of that increase was attributable to oil and coal, which increased 6.1%, and another 0.5 ppts stemmed from C-dollar depreciation.  PPI inflation in the year to June was also augmented greatly by higher oil prices but in this case reduced by a stronger C-dollar.  Oil lifted inflation by 5.0 ppts, while exchange rate movement mitigated the pace by 1.3%.  If neither oil prices nor the Canadian dollar had moved either monthly or on a yearly basis, Canadian producer prices would have risen 0.1% m/m and 2.7% y/y.  As it is, the PPI increased 1.3% m/m and 5.4% y/y. 

Canada’s index of raw material prices recorded an accelerated monthly leap of 4.4% in June, which lifted its 12-month increase to 31.9% from 27.1%.  Prices for mineral fuels rose 8.4% and 76.8% between June 2007 and June 2008.  Not including mineral fuels, the raw material price index would have dropped in both monthly and on-year terms.  As in other economies, an extended and sustained decline in Canadian energy prices would go a long way toward containing inflation.  



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