The quite-thorough Industrial Product Price Index (IPPI) report from Statistics Canada monitors price movements for a vast array of materials and products used in industrial processes. It provides a good means to examine some of the detail behind what is presently happening with respect to construction costs. As of June 2008, the most recent results for the relevant sub-groupings within the IPPI are examined in this story.

About half of the IPPI major sub-categories have more or less direct tie-ins with residential and non-residential construction activity. The most recent results for the relevant sub-groupings within the IPPI are as follows. (Please also see also the special notes section at the end of this report.)

• Lumber and other wood products: -3.3% year over year (y/y) and +1.5% month to month (m/m).
• Furniture and fixtures: +1.3% y/y and 0.0% m/m.
• Primary metal products (steel and aluminum): -2.1% y/y and -1.1% m/m.
• Metal fabricated products (structural steel): +5.4% y/y and +0.7% m/m.
• Machinery and equipment (includes construction machinery and HVAC − heating, ventilating and air conditioning equipment): -1.1% y/y and +0.3% m/m.
• Motor vehicles and other transportation equipment: -1.7% y/y and +1.0% m/m.
• Electrical and communications products (wiring and lighting): -2.4% y/y and +0.6% m/m.
• Non-metallic mineral products (cement, concrete, gypsum and glass): +1.8% y/y and 0.0% m/m.
• Petroleum and coal products (includes gasoline and diesel fuel, plus paving material and shingles): +49.6% y/y and +6.1% m/m.
• Chemicals and chemical products (includes synthetic rubber, paint and insulation): +8.2% y/y and +2.1% m/m.

Large Price Gains in Three Product Areas − Steel, Copper and Petroleum
Prices in some key construction-related product areas have been heating up since the start of this year. The following are the IPPI sub-categories with the largest percentage gains.

Steel:

• Primary steel, +15.1% since January 2008.
• Sheet, strip and plate, hot rolled carbon steel, +22.0% since January.
• Rebar, +16.8% since January. Reports from the United States indicate that this figure may be too low by a significant factor. RSMeans is reporting that rebar prices increased in the U.S. by 25% to 30% between the first and second quarters of this year, before leveling off again.
• Structural shapes, steel, including fabricated, +15.9% versus January.

Copper:

• Copper and copper alloy products, +12.6% since the beginning of the year.

Petroleum:

• Gasoline and fuel oil, +28.8% since January and +38.6% year over year.
• Diesel fuel, +21.6% since January and +41.8% year over year.
• Asphalt, +26.6% since January.

Raw Material Prices for all Canadian Manufacturers +31.9%
The foregoing are prices that Canadian manufacturers are charging. The prices that they are paying to their suppliers (often sourced outside the country) are captured in the Raw Materials Price Index (RMPI).

Two of largest sub-category RMPI price movements, with particular construction-related properties, have been for ferrous materials (+21.6% year over year) and non-metallic minerals (+12.1%).

The mineral fuels (i.e., crude oil) component of the RMPI is +76.8% year over year, largely accounting for the robust increase (+31.9% year over year) in the RMPI overall.

Special Notes: The IPPI series monitors the prices that Canadian manufacturers receive when their goods leave the plant. Since Canadian producers export many of their goods, their prices are often quoted in foreign currencies, mainly in terms of the U.S. dollar. Therefore, fluctuating currency values can have quite an impact on the price, when converted back into Canadian dollars.

The IPPI is a middle-stage price indicator that does not include the transportation, wholesaling and retailing costs that enter into the Consumer Price Index (CPI). The earliest-stage cost indicator is the Raw Materials Price Index (RMPI), which includes input materials acquired from both Canadian and foreign sources.

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