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IPPI +5.3%

Industrial Production Price Index was up again -- the above 5.3% is on a YoY basis... on the bright side the strength of the CAD +3% "moderated" the IPPI.  Bottom line, over the past year Oil and Coal price rose 30%, Metals and Chemicals both rose by 8% and vegetables and feed were up nearly7%.  Try telling Canadian manufacturers that inflation is not a problem!

On the bright side, IPPI is basically back to its 2008 level (2002 was 100), 2008 was 115, and we are back at that level.  The truth is that input cost inflation is high, and it is surprising how little of this inflation has ended up in the CPI (or core CPI) at 3.2% and 2.2% respectively. However, it makes some sense as Canadian companies have been investing heavily, high Capex translates into more efficient production (usually) so that some of these costs have been absorbed there.

Overall, inflation pressures are rising in Canada, the trend in the IPPI will translate into higher CPI (eventually).  The BoC has so far remain on the sideline -- my guess is that the stalled economy (August & September) will translate into less wage inflation -- although the Canadian labor market, while not very thigh, is certainly showing some signs of "warming up".  These divergent tendencies make sense in country such as Canada that is a price taker for most input costs (also a price taker for most outputs).  It makes fiscal policy far more important for the Canadian governments (Federal and Provincial) as to how to deal with these external factors.  

We know that the Federal government wants to return to budgetary equilibrium -- still some way to go to meet the 2007 surplus level, the provinces have a number of divergent objectives -- some just won elections (Ontario), or are lead by a new leader (Alberta) others are contemplating a "pre-electoral" zone (Quebec) that will generate different regional directions.


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