Prices of manufactured products in Canada, according to the Industrial Price Index (IPPI), increased by 1.6% m/m in January and increased by 5.8% year-on-year. Prices of raw materials purchased by manufacturers operating in Canada, according to the Raw Materials Price Index (RMPI), increased by 3.7% month-on-month and increased by 11.8% year-on-year.
Industrial Products Price Index
The industrial product price index rose 1.6% month-on-month in January. This was the fourth consecutive monthly increase and the biggest gain since April 2024 (+1.6%). The January 2025 rally was driven by higher prices of energy and petroleum products. Excluding energy and petroleum products, the industrial products price index increased by 0.9% m/m in January.
Prices of energy and petroleum products rose 7.0% month-on-month in January, following a 0.8% decline in December. This was the group’s largest monthly increase since August 2023 (+10.3%). The increase in January 2025 was mainly due to higher prices of refined petroleum energy products (+7.0%), especially diesel fuel (+9.4%) and automotive final gasoline (+5.4%). The rise in the prices of refined petroleum energy products was driven by an increase in the price of conventional crude oil (+8.1%), the main input to their production. In addition, cold weather in January across Canada and some parts of the United States has increased demand for heating fuel. This has put upward pressure on prices, especially for distilled fuels such as diesel.
Prices of fruit, vegetables, fodder and other food products rose 2.1% month-on-month in January, led by higher prices for cereals and oilseed products, n.e.c. (+5.2%). Signs of tightening oilseed supply helped push prices of oilseed products higher in January as difficult weather conditions in high-producing South American countries lowered production forecasts.
Market Reactions to Canada’s Industrial Price Index
Market reactions to the IPI figures have been mixed, largely reflecting investor sentiment and expectations for future economic performance. A lower-than-expected IPI could lead to a bearish outlook for the Canadian dollar as traders reassess their positions based on expected inflationary pressures. By contrast, investors may view falling prices as a possible signal for the Bank of Canada to maintain or even lower interest rates, which could stimulate economic activity. However, it seems that Prevailing sentiment tends towards caution, with many investors choosing to refrain from investing in anticipation of further data that may illustrate the direction of the Canadian economy.
Canada’s Industrial Price Index serves as a crucial measure of price changes for manufactured goods in Canada, providing insights into inflationary trends and production costs. When prices rise, it can indicate increased demand, but a decline or recession can signal an economic slowdown. January’s figures, especially the decline to 0.2%, show a slowdown in the manufacturing sector, driven by various factors, including supply chain disruptions, changing consumer preferences, and broader economic uncertainty. This decline could lead to concerns about the overall health of the economy, especially as Canada heads to recover after the pandemic.
The impact of the January Internal Producer Price Index data on the Canadian dollar was immediate, as the currency saw fluctuations against major pairs. A lower-than-expected IPI could lead to a weaker Canadian dollar, as traders adjust their expectations for interest rates and economic growth.
The Bank of Canada is watching these indicators closely when making monetary policy decisions and the continued decline in the internal producer price index may lead to a more dovish stance at upcoming meetings.
Expectations for the current month on the Canadian industrial price index
Looking ahead to February, analysts are cautiously optimistic but remain vigilant about the possibility of further disappointments. The consensus forecast for the IPI for the current month was set at 0.5%, reflecting hope for a recovery from January’s lackluster performance. Various factors, including international commodity prices, domestic demand and supply chain improvements, will play pivotal roles in shaping the upcoming data. In particular, oil prices, which significantly impact the Canadian economy, will receive close attention as they affect production costs and, therefore, the industrial producer price index.
Moreover, the economic landscape is evolving, with signs of recovery in different sectors. The manufacturing sector, a key component of the PPI, has shown resilience in some areas, with output increasing in industries such as automobiles and technology. If these trends continue, they could provide the necessary boost to the PPI to meet or exceed expectations in February. However, uncertainty remains, especially regarding global supply chains and potential geopolitical tensions that could disrupt trade and production.
As February progresses, market participants will be keeping a close eye on any early indications that may indicate a shift in the trajectory of the PPI. Retail sales data, employment figures, and other economic reports will provide a crucial context for the upcoming IPI release. In addition, ongoing discussions surrounding fiscal policy and government spending in Canada will be crucial, as they can significantly affect consumer demand and, consequently, the pricing of industrial products.
The effects of the January IPI results extend far beyond immediate market reactions; they also raise questions about Canada’s longer-term economic outlook. The continued decline in the prices of industrial products may have negative effects on corporate profitability, which may lead to lower investment and employment.
