It’s not just in Japan. Deflation is winning in Canada, too.
PRODUCER PRICES IN CANADA CONFIRM DEFLATIONARY TREND
Canada’s industrial product price index (IPPI), which is similar to the U.S.’s
producer product index (PPI), surprised to the down side, falling 0.5% in
September versus market expectations of a 0.2% decrease. Since May of this
year, the month-over-month trend in IPPI has been very volatile, going up one
month then reversing course the next month, so it is difficult to find a trend with
these monthly gyrations. Of the 21 major groups, over 85% were either down or
flat on the month and a measly 15% (or just three groups) managed to eke out
an increase. Again, this attests to our deflationary and hence income-heavy tilt
to our investment strategy.
On a year-over-year basis, IPPI remains deep in deflation territory, down a near-
record 6.1% in September. Excluding the effects of energy, which declined 2.6%
in September, IPPI was down 0.3% — the sixth consecutive monthly decline.
Year-over-year the trend in IPPI, excluding energy, is at -2.1%, just a slight
improvement from the -2.4% pace in August. Every stage of Canadian
production is still in deflation mode — the raw materials purchase index down
-21.4% YoY; prices for intermediate goods down 8.5% YoY – the ninth decline in
a row, and finished goods are deflating at a 1.9% YoY rate.
The strong Canadian dollar is playing a supporting but not a dominant role here
in terms of compounding this deflationary trend. As the Bank of Canada said in
its latest policy announcement “persistent strength in the Canadian dollar” is
going to “slow growth and subdue inflation pressures” and that seems to be the
case. For September, the Loonie was up 0.6% versus the U.S., according to
Statistics Canada, if the CAD remained unchanged, the IPPI would have declined
0.4% instead of sliding 0.5%.
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