November price declines in U.S. could hurt Canada

U.S. wholesale prices fell in November, led by faltering oil and food prices, according to statistics released by the U.S. Bureau of Labour Statistics Friday.

But what might be considered a good reading for American consumers could be bad news for Canada, which produces exactly those commodities falling in price.

The U.S. producer price index, which measures what American manufacturers get for their products, fell 2.2 per cent in November.

That reading was the fourth consecutive month in which wholesale prices dropped in the United States and was only slightly less than October's 2.8 per cent tumble.

Once you remove the effects of falling energy and flattening food prices, however, the index actually rose 0.1 per cent in November.

That means that all of the deflationary effect in the U.S. economy is centred in the commodity and energy sectors. And that could spell trouble for countries such as Canada, which sell all kinds of mineral products, food and energy to U.S. companies.

"With the six-year long commodities boom retracing all of its gains in the past six months, producer prices will continue to slide in the months ahead — providing welcome relief for manufacturers and consumers, but intense pain for resources providers," said Sal Guatieri, an economist with BMO Capital Markets in an economic commentary.

Producer price index gain (%)Nov.Energy -11.2Food 0.0 Total (except food and energy) 0.1Source: U.S. Bureau of Labour Statistics

Wholesale prices for energy products tumbled 11.2 per cent in November, which followed a 12.8 per cent drop in October.

Food, while not slipping to same degree as energy goods, also has followed the same downward path in the past two months, posting a zero gain in November and a 0.2 per cent drop in October.

Crude oil prices have fallen more than $100 US per barrel since the commodity peaked at $147 in the summer.

Similarly, wheat and other grains have slumped from their '08 highs as global consumer demand waned.