Analysis:Canada June Industrial Prices -1.0% M/M As CAD Rises>

By Yali N'Diaye

     OTTAWA (MNI) - The loonie's appreciation was strongly felt in June, 

when Canadian industrial product prices dropped 1.0% from May, half of 

it explained by the foreign exchange impact, according to data released 

Monday by Statistics Canada. 

     Excluding the impact of the 2.3% Canadian dollar appreciation 

against the greenback on average in June, the industrial product price 

index would have been down 0.5% instead of 1.0%, the agency estimated. 

     The data came at a time stronger economic indicators have been 

driving the Bank of Canada to tighten its policy, helping boost the 

currency. However, the tightening is occurring in a context of low 

inflation, with further loonie's appreciation only having the potential 

to further weigh on prices and challenge the central bank in arguing in 

favor of more hikes. In June, the Consumer Price Index dropped to 1.0% 

on a year-over-year basis, following a 1.3% gain in May. 

     It remains to be seen how far and at which pace the loonie 

continues to appreciate and the extent to which it impacts prices at the 

retail level going forward. 

     The 1.0% IPPI drop in June was the largest since December 2014, and 

drove the 12-month rate down to 3.3% from 5.2% in May. 

     Prices of energy and petroleum products, which fell 4.1% on the 

month, the largest decrease since February 2016, played a big part in 

the monthly decline, which will likely weigh on nominal manufacturing 

sales. 

     Prices of motorized and recreational vehicles, particularly 

sensitive to the exchange rate, posted a 1.5% decline on the month, and 

also had a significant impact. 

     Still, declines were widespread, with 16 of 21 commodity groups 

recording lower prices on the month. 

     As a result, prices excluding petroleum and coal were still down 

0.7% on the month, for a 12-month gain of 3.7%, down from 4.8% in May. 

     Energy also weighed on the raw materials price index, which fell 

3.7% in June, the largest monthly drop since December 2015. 

     Excluding a 9.3% drop in crude energy products, the largest 

decrease since January 2016, raw material prices edged up 0.1% on the 

month. 

     The agency reported that four of six commodity groups posted lower 

prices on the month. 

     On a 12-month basis, the RMPI rose 2.2%, for a 5.9% gain excluding 

crude energy products. 

-- MNI Ottawa Bureau; email: yali.ndiaye@marketnews.com -- 

[TOPICS: M$C$$$,MACDS$]