Canadian Producer Prices

January 6, 2009

The Canadian PPI slumped 2.6% between October and November, reducing its 12-month increase by 3.6 percentage points (ppts) to 5.9%. This sharp deceleration occurred in spite of C-dollar depreciation amounting to 2.7% from the prior month and 20.6% over the previous year. Plunging oil costs were the major disinflationary force in November. The contribution of lower oil costs of -2.2 ppts from October was three times greater than the mitigating 0.7 ppt positive contribution from a weaker currency. Over the past year, oil prices fell 10.4%, but the impact of such on year-on-year PPI inflation (-2.1 ppts) was less than a third of the 7.4 ppt boost from currency depreciation. A separate index of Canadian raw material prices fell by 13.4% in November and by 35% over the past four reported months. Although commodity prices have stabilized more recently, an abrupt and substantial collapse of aggregate demand will cause inflation to continue falling in Canada and most countries.



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