Canadian producer prices are falling, putting pressuring on profits and suppressing inflation, economists say.

Industrial product prices fell 1.2% in October, the first decline since July. “Tumbling energy and lumber prices caused the bulk of the decline, with petroleum and coal prices down 7.9% during the month,” notes BMO Nesbitt Burns.

Excluding energy, prices were still down 0.7% with declines widespread among other industries. On a year-over-year basis, industrial product prices fell 1.0%, declining for the first time in over two years, led by energy, pulp and primary metals prices. However, ex. energy prices are still up 0.3% from a year ago.

Raw materials prices fell 5.3% this month and are now 12.1% lower than a year ago. In October, the decrease was broad-based, with only lumber prices rising.

BMO Nesbitt Burns notes that in a separate release it was revealed that Canadian department store sales bounced back in October, similar to the U.S. — gaining 5.5% during the month, reversing a 4.6% slide in September.

“With producer prices falling and as the economy faces mounting excess capacity, inflation will continue to moderate in the months ahead. The Bank of Canada’s recently stated outlook for core inflation to fall to 1.5% by the second half of 2002 looks appropriate,” notes BMO. “At the same time, the rapid decline in producer prices does point to further pressure on profits.”