Canadian Manufacturing Prices Decline, Driven by Crude Oil Costs

By Robb M. Stewart

In October, Canadian manufactured products saw a decline in prices, while Canadian companies benefited from lower raw material costs, mainly due to a drop in crude oil prices. According to Statistics Canada, the industrial product price index fell 1.0% compared to the previous month after a slight increase of 0.4% in September. Over the course of 12 months, the producer-price index experienced a decrease of 2.7%.

Industrial Product Price Index Reflects Manufacturers' Prices

The industrial product price index measures the prices that Canadian manufacturers receive once their goods leave the plant. However, it does not reflect the final prices consumers pay for these goods on store shelves.

Energy and Petroleum Products Experience Price Drop

The decline in prices for the month was driven primarily by a drop in energy and petroleum products, which experienced a 5.7% decrease compared to the month before. Statistics Canada revealed that prices for refined petroleum products, specifically finished motor gasoline, were broadly lower.

Sharp Decrease in Softwood Lumber Prices

Softwood lumber prices also saw a significant decline, marking the largest monthly drop since March with a decrease of 6.4%. This can be attributed to weak seasonal demand as well as high interest rates that continue to negatively impact real estate activity.

Excluding Energy Products, Producer Prices Show Slight Decrease

When excluding energy products, producer prices were 0.3% lower compared to the previous month, according to the data agency's report on Friday.

Raw Material Prices Decline in October

Prices for raw materials experienced a decline of 2.5% in October, according to the latest report by the data agency. When compared to the same period last year, raw material prices were down by 0.8%.

The report highlights the volatility of crude oil prices in October, which were greatly influenced by ongoing geopolitical instability in the Middle East. However, falling demand and concerns about future demand also contributed to the price fluctuations. By excluding crude energy product prices, the raw materials index showed a 1.0% decrease compared to the previous month.

The decline in raw material prices can be attributed to lower prices for metal ores, concentrates, and scrap, particularly nickel ores and concentrates which experienced a significant drop. Additionally, hog prices also declined for the second consecutive month.

As a result of aggressive interest-rate increases by the Bank of Canada over the past year, Canada's economic activity has cooled significantly. The central bank anticipates that the economy will remain weak in the coming year. Last month, they decided to keep their benchmark rate unchanged as the economy transitions from a state of excess demand, where producers struggle to keep up with consumption, to a state of spare capacity, where supply exceeds demand.