Canadian manufacturers’ prices declined 2.6% in May compared with May 2001, the eighth consecutive year-over-year decline. Petroleum and coal product prices fell 16.5% during the month. If their prices had been excluded, the IPPI would have decreased 1.6% instead of 2.6%.

Also, manufacturers paid 5.4% less for their raw materials than they did in May 2001.

The monthly decline was more than expected, indicating continued margin pressure.

RBC Financial says that the drop “illustrates once again the lack of pricing power that Canadian manufacturers continue to experience. It also indicates that there are no inflationary pressures coming from the industrial side of the economy. In such an environment, the key for success for manufacturers is careful cost control and a continued emphasis on productivity gains.”

BMO Nesbitt Burns points out that the stronger Canadian dollar in May had a significant effect on prices as the decline would have been a modest 0.2% net of currency moves. However, on a 12-month basis the currency effects have been negligible.

“Canadian industrial product prices remain muted, and corporate pricing power continues to be weak,” concludes BMO. “Further gains in the dollar will exert more downward pressure on industrial prices, keeping pressure on corporate profit margins.”

BMO also notes that, in a separate release, average weekly earnings rose 2.1% year-over-year in April. “The gain was higher than inflation of 1.7% in the same month, but earnings have been below CPIX growth for most of the last year.”