The Canadian Industrial Products Prices Index dropped 1.2% in June, highlighting the fact that it will not be a source of inflation anytime soon.

RBC Financial economists note that the 12.5% drop in petroleum and coal prices led the decline. “Excluding petroleum and coal, the IPPI would still have declined by 0.4%, illustrating 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. The key for success for Canadian manufacturers continues to be careful cost control and a strong emphasis on productivity gains,” it says.

BMO Nesbitt Burns agrees, noting, “While Canadian producer prices tend to carry more information about the profit outlook rather than the inflation outlook, at the very least we can conclude that there are no inflation pressures emerging from the industrial sector.”

BMO points out that the only sector reporting a significant rise in prices in June was primary metals, which rose 1.7% in the month and 1.6% from a year ago. It says that the recovery in manufacturing and the U.S. steel duties have helped put a floor under primary metals.

Manufacturers also benefited from another decline in raw materials prices, RBC notes. “Raw material prices fell 1.8% in June from May, well below market expectations of a 0.4% gain. The rise of the Canadian dollar in June contributed to the downward pressure, as many commodity prices are quoted in U.S. dollar terms. This effect is likely to be reversed in July with the Canadian dollar weakening so far this month. However, with overall raw material prices down 4% over June of last year, month-to-month currency fluctuations won’t change the bottom line implication that little in the way of inflationary pressures are building in the production pipeline right now.”

BMO concludes, “The high degree of slack remaining in the U.S. manufacturing sector continues to put downward pressure on Canadian industrial product prices. This never was a source of inflation concern for the Bank of Canada, and it won’t be anytime soon either.”