The exchange rate, reflecting the ongoing effect of the Canadian dollar's strength in relation to its US counterpart, had a major impact on the increase in prices. In December, the Canadian dollar lost 3.7% of its value in relation to the US dollar, which is a reversal after three consecutive monthly increases. If the exchange rate that is used to convert these prices had remained unchanged from the previous month, the IPPI would have risen 0.1% compared with November instead of 1.1%, and on a 12-month basis, the IPPI would have risen 2.8% rather than falling 0.9%.

The Raw Materials Price Index (RMPI) rose 0.2% from November to December, a much lower rate of increase than the 3.4% gain recorded in November. In December, the increase in prices for vegetable products and animals and animal products was tempered by a steep decline in prices for non-ferrous metals, while prices for mineral fuels remained unchanged.

Compared with December 2006, raw materials cost plants 10.0% more. The increase in the index was driven primarily by higher prices for mineral fuels and vegetable products.

In December, the IPPI was 114.2 (1997=100), up from November's level of 113.0. The RMPI was 182.1 (1997=100), up from November's revised level of 181.8.

For 2007 as a whole, manufacturers received an average of 1.5% more for their products in 2007 than in 2006, which was much less than the 2.3% increase received in 2006. The index was mainly propelled by the prices for primary metal products.

Raw material prices were up an average of 7.7% in 2007 compared with the 11.3% increase in 2006. This rise in prices was mainly attributable to the increase for non-ferrous metals.

IPPI: Monthly increase affected by the weakened Canadian dollar

Month over month, manufacturers' prices were pushed up mainly by the prices for motor vehicles and other transport equipment as well as petroleum and coal products. However, primary metal products were the only group to record a decrease, and this downward movement was mainly a result of the economic slowdown in the United States.

In December, the prices for motor vehicles and other transport equipment rose 2.3% after three consecutive monthly decreases. This strong increase actually masks a decline, since the US dollar appreciated 3.7% against its Canadian counterpart. Also, analysts in the automotive sector point out that, despite numerous sales incentives, the weak demand in December follows a decade of robust activity in the motor vehicle market.

The increase in prices for petroleum and coal products was moderate (+2.0%) compared with the jump recorded in November (+7.9%). Fluctuations in petroleum prices are highly sensitive to the uncertainties of economic agents regarding the evolution of the American economy and its effect on the world economy. Also, expectations of a milder-than-usual winter moderated the increase in energy prices. If the prices for petroleum and coal products were excluded, the IPPI would have risen 0.9% instead of 1.1%, and this would have been its first increase after eight consecutive monthly declines.

Among other price increases, those for pulp and paper products contributed the most to the rise in the IPPI with a gain of 1.8%. Following production cutbacks, newsprint and other paper for printing rose 3.7%, the first substantial increase in 2007. The price for pulp rose 3.0% owing to the combined effect of increased demand and reduced supply. This was its first increase after three consecutive monthly declines.

On the other hand, primary metal products were the only product group to decline in December (-1.5%), continuing the downward trend for an eighth month. Nickel products fell 15.8% compared with November and as a result were down 54.8% from their historic peak in March 2007.

IPPI: 12-month change shows that the decline in the IPPI was tempered by higher petroleum prices

The IPPI declined 0.9% from December 2006 to December 2007, after posting two consecutive decreases in October (-1.1%) and November (-0.6%). The effect of surging prices for petroleum and coal products on the overall index was tempered by lower prices for motor vehicles, primary metal products and pulp and paper products.

Prices for motor vehicles and other transport equipment fell 8.0%, a ninth consecutive price decline. During the same period, the US dollar lost 13.0% of its value against the Canadian dollar.

Primary metal prices continued their downward movement, registering a 13.4% decline, the steepest 12-month drop in the past five years. The index has given up all the gains registered since April 2006. All metal groups recorded 12-month declines.

Prices for pulp and paper products fell by 6.1%, with an especially steep decline for newsprint and other paper for printing (-16.4%).

The drop in the IPPI was mainly moderated by prices for petroleum and coal products, which jumped 23.9%, a fourth straight increase. If petroleum and coal products were excluded, the IPPI would have fallen 3.4% instead of 0.9%.

RMPI: Prices for raw materials post slower growth

In December, prices for raw materials rose a modest 0.2% compared with the robust 3.4% increase recorded in November. Prices for mineral fuels stabilized after jumping 9.7% in November. Increased prices for vegetable products and animals and animal products were almost entirely offset by decreases in the prices for non-ferrous metals.

The prices for mineral fuels remained unchanged in December, masking the strong volatility of crude oil prices. Crude oil prices reached $100 per barrel at the start of the month, and then quickly dropped back to $92. The RMPI excluding mineral fuels therefore rose 0.2%, the same rate as for the overall RMPI, to reach a level 9.1% below the historic peak of May 2007.

Vegetable products (+8.0%) and animals and animal products (+2.3%) contributed the most to the rise in the RMPI.

Non-ferrous metals were the only group to register a reduction in prices, and this was almost entirely offset by the contribution of other products. Prices for non-ferrous metals continued their downward trend with a decrease of 4.7%. The index was down 22.4% from its historic peak in May 2007. Prices for non-ferrous metals continued to react to the economic slowdown in the US housing sector and more generally to the contraction in global demand for metals. In particular, the largest decreases were for concentrates of lead (-25.2%), zinc (-6.5%) and nickel (-15.4%).

On a 12-month basis, prices for raw materials rose 10.0%, down from the increases of 13.0% in October and 15.6% in November. Raw material prices were mainly pushed up by a 31.2% surge in crude oil prices and, to a lesser extent, by the 27.7% jump in the prices for vegetable products. Without mineral fuels, the RMPI would have declined 3.1% instead of rising 10.0%, recording its first decrease since August 2005.

Prices for intermediate goods: Second monthly increase

From November to December, prices for intermediate goods posted a second gain (+0.8%) after six consecutive monthly declines. Intermediate goods were pushed up by petroleum and coal products and, to a lesser extent, pulp and other paper products, motor vehicles and other transport equipment, chemical products, and fruit, vegetables and feed products. Primary metal products were the only group to slow the increase for intermediate goods.

From December 2006 to December 2007, prices for intermediate goods declined 0.6%, after a slight 0.1% increase in November and a 0.5% drop in October. Decreases were recorded for primary metal products and, to a lesser extent, for pulp and paper products, motor vehicles, electrical and communication products, and lumber and other wood products. Intermediate goods prices showing increases included those for petroleum and coal products, fruit, vegetables and feed products, and chemical products.

Prices for finished goods: Monthly increase led by motor vehicles

From November to December, prices for finished goods rose 1.2%, the second increase after seven consecutive monthly declines. Motor vehicles accounted for most of the increase. Minor contributions were made by petroleum and coal products, machinery and equipment, electrical and communication products, and meat, fish and dairy products. No finished products group recorded a decrease.

Prices for finished goods were down 1.5% in December compared with the same month a year earlier, a sixth consecutive 12-month decline. Prices for finished goods were mainly pulled down by lower prices for motor vehicles, machinery and equipment, and electrical and communication products. However, the reduction in prices for finished goods was slowed by an increase in prices for petroleum and coal products, tobacco products and food products.

Industrial product price indexes
(1997=100)
	Relative importance	December 2006	November 2007r	December 2007p	December 2006 to December 2007	November to December 2007
					% change
Industrial Product Price Index (IPPI)	100.00	115.2	113.0	114.2	-0.9	1.1
IPPI excluding petroleum and coal products	94.32	110.3	105.6	106.6	-3.4	0.9
Aggregation by commodities
Meat, fish and dairy products	5.78	108.1	107.3	108.3	0.2	0.9
Fruit, vegetables, feeds and other food products	5.99	106.8	111.4	112.8	5.6	1.3
Beverages	1.57	123.0	125.4	125.5	2.0	0.1
Tobacco and tobacco products	0.63	203.2	218.4	218.4	7.5	0.0
Rubber, leather and plastic fabricated products	3.30	118.0	115.6	116.0	-1.7	0.3
Textile products	1.58	100.8	98.5	99.0	-1.8	0.5
Knitted products and clothing	1.51	104.5	104.6	104.6	0.1	0.0
Lumber and other wood products	6.30	84.9	81.1	81.8	-3.7	0.9
Furniture and fixtures	1.59	119.0	120.2	120.2	1.0	0.0
Pulp and paper products	7.23	108.0	99.6	101.4	-6.1	1.8
Printing and publishing	1.70	116.0	115.7	116.3	0.3	0.5
Primary metal products	7.80	151.2	133.0	131.0	-13.4	-1.5
Metal fabricated products	4.11	123.4	122.9	123.2	-0.2	0.2
Machinery and equipment	5.48	107.3	102.8	103.7	-3.4	0.9
Motor vehicles and other transport equipment	22.16	93.3	83.9	85.8	-8.0	2.3
Electrical and communications products	5.77	94.9	88.5	89.5	-5.7	1.1
Non-metallic mineral products	1.98	119.9	123.3	123.6	3.1	0.2
Petroleum and coal products1	5.68	205.3	249.4	254.4	23.9	2.0
Chemicals and chemical products	7.07	123.8	124.9	126.1	1.9	1.0
Miscellaneous manufactured products	2.40	113.7	112.7	113.6	-0.1	0.8
Miscellaneous non-manufactured products	0.38	345.2	407.5	418.1	21.1	2.6
Intermediate goods2	60.14	119.7	118.0	119.0	-0.6	0.8
First-stage intermediate goods3	7.71	157.3	145.4	145.2	-7.7	-0.1
Second-stage intermediate goods4	52.43	114.1	113.8	115.1	0.9	1.1
Finished goods5	39.86	108.5	105.6	106.9	-1.5	1.2
Finished foods and feeds	8.50	114.1	115.3	115.7	1.4	0.3
Capital equipment	11.73	100.9	93.9	95.3	-5.6	1.5
All other finished goods	19.63	110.6	108.5	110.0	-0.5	1.4
r revised p preliminary 1. This index is estimated for the current month. 2. Intermediate goods are goods used principally to produce other goods. 3. First-stage intermediate goods are items used most frequently to produce other intermediate goods. 4. Second-stage intermediate goods are items most commonly used to produce final goods. 5. Finished goods are goods most commonly used for immediate consumption or for capital investment.

Raw materials price indexes
(1997=100)
	Relative importance	December 2006	November 2007r	December 2007p	December 2006 to December 2007	November to December 2007
					% change
Raw Materials Price Index (RMPI)	100.00	165.6	181.8	182.1	10.0	0.2
Mineral fuels	35.16	242.3	302.9	303.0	25.1	0.0
Vegetable products	10.28	93.2	110.2	119.0	27.7	8.0
Animals and animal products	20.30	104.5	100.9	103.2	-1.2	2.3
Wood	15.60	82.8	82.4	82.5	-0.4	0.1
Ferrous materials	3.36	122.0	123.4	128.2	5.1	3.9
Non-ferrous metals	12.93	247.7	218.1	207.8	-16.1	-4.7
Non-metallic minerals	2.38	141.3	149.6	149.6	5.9	0.0
RMPI excluding mineral fuels	64.84	130.1	125.8	126.1	-3.1	0.2
r revised p preliminary

Note to readers

The Industrial Product Price Index (IPPI) reflects the prices that producers in Canada receive as the goods leave the plant gate. It does not reflect what the consumer pays. Unlike the Consumer Price Index, 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.

Canadian producers export many goods. They often quote their prices in foreign currencies, particularly for motor vehicles, pulp and paper products, and wood products. Determining the full effect of fluctuating exchange rates on the IPPI is a difficult analytical task. However, it should be noted that many prices collected to calculate the IPPI are quoted in US dollars and then converted into Canadian dollars. Therefore, a rise or fall in the value of the Canadian dollar against its U.S. counterpart affects the IPPI.

The Raw Materials Price Index (RMPI) reflects the prices paid by Canadian manufacturers for key raw materials. Many of these prices are set in a world market. Unlike the IPPI, the RMPI includes goods not produced in Canada.