Canadian business prices drop again in December

Canadian businesses received less cash for their products in December while Canada's commodity prices dipped sharply in the same month, according to figures released Thursday.

Statistics Canada said that Canada's industrial product price index slipped 1.9 per cent in December over November's level. That number represented the fourth consecutive monthly drop measured against the index's peak in August 2008.

Plummeting oil prices — down 18 per cent — played a big role in the overall decrease. Once mineral fuel costs were subtracted, prices charged by companies fell by 0.1 per cent in December, the second month in a row in which this indicator lost value.

Petroleum and coal prices were off 28 per cent comparing December 2008 with December 2007. Still, fuel producers received 80 per cent more for their products in the last month of 2008 than they did in 1997, the year when the IPPI equaled 100.

The overall price index was up 2.5 per cent in December 2008 versus December one year earlier. That gain represented the worst year-over-year increase in the past eight months, Statistics Canada said.

The lack of pricing power for companies, as indicated by the slumping IPP index, tends to cramp profit margins in the short-term since most input costs are fixed. Thus, analysts look at product price indices as a predictor of firm profitability.

Raw material meltdown

Prices of raw materials — those rocks and fluids for which Canada has gained a worldwide reputation — also took a pounding in December, down 15.4 per cent.

Again the culprit was falling oil and other fuel costs, down almost 30 per cent in the month.

"During the last three months of 2008, the decline accelerated, and the index is now below its level registered in January 2005," Statistics Canada said.

This decline in commodity values was confirmed by Scotiabank, which said commodity prices fell in December by 5.5 per cent, the fifth consecutive monthly drop.

The bank estimated its index of commodity prices had fallen almost 75 per cent in the past three months.

"The shift from boom to bust in many commodities has been the most rapid in the history of the Scotiabank Commodity Price Index [dating back to 1972]," said Patricia Mohr, a Scotiabank economist.

Eating and drinking

But even if Canada's economy is experiencing tough times, at least Canadians are eating and drinking more.

Statistics Canada said receipts for food and drink establishments rose 1.2 per cent in November, the latest period available, compared to October.

For drinks-only places, cash sales rose by 0.1 per cent in the same month versus October, but were 6.4 per cent higher comparing November 2008 to the same month one year earlier.