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Canadian Input Prices Fall

James Boston
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Canadian Input Prices Fall

Statistics Canada has released data on input price inflation for the month of May. The Raw Material Price Index has fallen from the April reading of 0.1% to -.04%, the market had expected this metric to show a drop to just -0.1% this month. Industrial Product Prices have also fallen back in May, the month on month change is showing as -0.5% in contrast to the -0.2% contraction in April, consensus was for a return to 0.0% change on the month.

Canada is one of the fastest recovering economies among the developed G7 group. The jury however is still out as to the fundamental strength and stability of this recovery. Recent events such as the rising oil prices are skewing the tax take in this economy and therefore artificially boosting the figures in the short run.

Looking below the surface there are significant regional disparities in the Canadian recovery, for example Alberta has accounted for over 80% of the new jobs added over the past 12 months. This however is a problem faced by many recovering economies at this stage in the cycle, and unlike Britain for example the provincial nature of Canada allows for more targeted initiatives to address this phenomena.

House price growth too remains a headache for the Canadian authorities, average prices have expanded by 7% according to the last quarterly reading. Measures are being taken to cool this expansion in home prices but many international observers are unsure as to the Canadian authorities insistence that a soft landing is likely.

The recent sharp fall off in business confidence data is testament to rising concerns around the stability of the Canadian recovery. Long-term forecasts for the economy however are interpreting the current challenges facing the Canadian recovery as surmountable, on balance if the risks can be addressed then Canada is better placed than many of it’s peers to make a full economic come back.

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