Industrial product prices rose 0.2% in September, surprising economists who had called for a 0.4% decline.

Statistics Canada says this was the third consecutive month of increases for the IPP index.

Prices for lumber and other wood products were up 7.2% from August, reflecting improved demand and a tight supply. Prices for motor vehicles and other transport equipment continued to fall (-0.9%), mainly because of the effect of the exchange rate. Lower prices were also observed for petroleum and coal products (-2%), pulp and paper products (-1%) and electrical and communication products (-0.8%).

“Compared to last year’s levels, September prices were down 2.6%, particularly for motor vehicles and other transport equipment,” notes RBC Financial. “However, the overall annual decline is predominately a result the sharp Canadian dollar appreciation during the year.”

BMO Nesbitt Burns says that the increase in factory prices does not imply that pipeline inflation pressures are building. “It also remains too early to conclude that Canadian businesses are seeing the return of some pricing power. The Canadian dollar continues to act as a restraining influence on industrial prices, particularly those that are priced in U.S. dollars, such as motor vehicles and lumber,” it says. “This is most evident in the 2.6% year over year decline in industrial prices, which would have been a 1.3% rise, but for the surge in the loonie.”

Raw materials prices were weaker-than-expected falling 3.1% on the month, primarily due to a sharp decline in the price of crude oil, Nesbittt notes. “Leading the fall and triggering the outsized decline in the headline number were mineral fuels, which fell 10.4% month-over-month,” comments RBC. “Providing the only major offsets to declining prices were wood products and animal products, the latter driven by higher prices for cattle. This likely comes as welcome news to the western provinces following the mad cow scare earlier this summer, although prices still have a ways to go before they return to more normal levels.”

Nesbitt concludes, “This report gives further weight to the view that inflationary forces in Canada remain well under control. The surge in the Canadian dollar is reinforcing this view, but price pressure is benign even after taking currency market developments into consideration. The Bank of Canada’s options are left open.”