Factory-gate prices up 14.5% from a year ago as diesel more than doubles

The oil shock rippling through the Canadian economy is showing up well before goods reach store shelves. Prices that Canadian producers receive for their products rose 2.0% in September from August and 14.5% from a year earlier, Statistics Canada said Thursday, driven by a sharp jump in refined petroleum products.

The raw materials that manufacturers buy climbed even faster: the Raw Materials Price Index rose 4.8% in the month and 27.0% year over year, led by crude oil.

The numbers

• Industrial Product Price Index (IPPI): +2.0% month over month (August: +1.2%), +14.5% year over year, its 24th consecutive annual increase
• IPPI excluding energy and petroleum products: +0.3% in the month
• Energy and petroleum products: +12.1% in the month; diesel +18.4%, light fuel oils +15.4%, gasoline +7.8%
• Year over year: diesel +106.1%, light fuel oils +99.4%, gasoline +45.3%
• Raw Materials Price Index (RMPI): +4.8% in the month, +27.0% year over year (August: +22.9%)
• RMPI excluding crude energy: -0.4% in the month, +13.8% year over year
• Conventional crude oil: +16.8% in the month, +52.2% from a year earlier

Beyond energy: metals and chemicals

Energy was the main story, but not the only one. Chemicals and chemical products rose 3.8% in September, with plastic resins up 11.0% and fertilizers and pesticides up 4.1%, a reflection of how petroleum feeds into petrochemicals. Over 12 months, unwrought copper is up 46.3%, gold, silver and platinum-group metals 31.9%, and aluminum 26.9%.

Markets showed the same pressure the same day. December crude oil rose US$2.32 to US$99.47 a barrel, while the S&P/TSX composite index fell 351.54 points to 35,973.45, led by materials stocks, according to The Canadian Press. December gold dropped US$89.60 to US$4,060.40 an ounce, and the loonie edged up to 71.32 U.S. cents.

Why it may not all reach consumers

Factory-gate prices are not consumer prices. Some of these costs will be absorbed in margins, and part of the annual increase reflects metals that Canada exports rather than buys. Excluding energy, the monthly IPPI increase was a modest 0.3%, and raw materials outside crude actually fell 0.4% in September. Consumer inflation outside energy was close to 2% in the September CPI released three days earlier.

Still, diesel matters for almost everything that moves by truck, rail or ship, and businesses told the Bank of Canada this quarter that they intend to keep passing on larger-than-normal cost increases.

What it means for Canadian households and investors

If crude stays near US$100, higher transport and packaging costs could keep pressure on prices for goods in the months ahead, even as groceries have recently slowed. For investors, the split is familiar: Canadian energy producers benefit from high oil prices, while industrial companies and consumers that depend on fuel face a cost squeeze. A diversified portfolio typically holds both, which is one reason broad index funds tend to ride out commodity swings better than concentrated bets. This is general information, not personalized advice.

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