Thursday, June 4, 2009

Canada's industrial prices slump on soaring currency

Canada's manufacturers saw prices for their products drop in April, mainly because of a rising loonie, according to figures released Monday.

Statistics Canada said its industrial product price index fell half a percentage point in April.

The index — which measures how much manufacturers get as their products leave the plant gate — stood at 117 in April, down 2.2 per cent versus last April.

That means that what manufacturers received has risen 17 per cent since 1997, when the index equaled 100.

According to the Bank of Canada, however, consumer prices rose 26 per cent over the same period, essentially meaning that manufacturers saw inflation-adjusted product prices drop over the same 12-year period.

Manufacturers suffered because the Canadian currency gained almost 10 per cent in May against the U.S. dollar, Statistics Canada said.

Companies that sell overseas get paid in U.S. dollars, a currency that has been weak on global markets in 2009.

"Some Canadian producers who export their products to the United States are generally paid in prices set in U.S. dollars. Consequently, the relative weakness of the U.S. dollar in relation to the Canadian dollar had the effect of reducing the corresponding prices in Canadian dollars," said Canada's statistical agency in a news release.

If the figures are adjusted for the change in relative currency values, Statistics Canada's industrial product price index would have risen by 0.3 per cent in the month instead of the 0.5 per cent drop that manufacturers actually experienced.