Manufacturers’ prices were down 0.9% in October, following three months of increase, according to Statistics Canada. This is largely the result of a stronger Canadian dollar. Without the dollar’s influence, the Industrial Product Price Index would have risen 0.9% rather than falling 3.8%. Raw materials prices rose by 1.1% in October.

BMO Nesbitt Burns notes that industrial prices are now 3.8% below year-ago levels. “This is the second largest decline on record, trailing only a 3.9% decline in January 1991. However, the weakness is almost entirely due to the soaring loonie,” it says.

Energy prices were the big drag on the headline, sliding by over 2% for a second consecutive month. However, even excluding energy, industrial prices declined 0.8%, as most sectors saw prices fall.

“The soaring loonie continues to restrain pipeline costs,” says Nesbitt. “However, the global recovery, which is clearly gaining traction, is starting to put upward pressure on commodity prices. Over time, the latter force is expected to overwhelm the impact of the strong loonie.”

“With domestic raw materials input prices rising at the same time that the Canadian dollar’s appreciation is sparking declines in output prices, the squeeze on profit margins is becoming apparent,” warns RBC Financial. “Rising volumes of business activity in an economic expansion should, however, be offsetting in terms of the overall impact upon the bottom line over the next year.”

In a separate release, RBC reports that Canada’s international travel deficit jumped to a nine-year high in the third quarter. “Foreign travel spending in Canada improved over the second quarter, suggesting that the effect of SARS is lifting. However, the growth pace of travel spending by Canadians abroad was three times that of foreign travel spending in Canada,” it says.