In June, Canada’s Industrial Product Price Index (IPPI) increased by 0.4% month-over-month, surpassing the predicted decline of 0.1%. This follows a 0.5% decrease from the previous month. Year-over-year, the PPI rose by 0.7%, down from 1.2% in May. The Raw Materials Price Index (RMPI) also climbed by 2.7% from its previous decline, largely due to a 6.8% increase in crude energy products.<\/p>\n
The rise in IPPI was influenced by various sectors. Primary non-ferrous metal products surged by 2.8%, with unwrought platinum group metals and alloys seeing a substantial 15.6% increase, the highest since September 2012. Meat, fish, and dairy products grew by 2.2%, predominantly due to a 6.7% rise in fresh\/frozen chicken, catalysed by increased summer demand. Energy products were up 1.1%, ending a three-month decline, with diesel fuel intensifying by 3.6%.<\/p>\n
Offsetting these increases, there were declines noted in several sectors. Primary ferrous metal products decreased by 2.4%, while electrical and electronic products fell by 1.7%. The price for motorized vehicles slightly reduced by 0.3%, balancing out some of the gains seen in other categories.<\/p>\n
Based on the latest producer price data, we believe the narrative of smooth disinflation in Canada is now in question. The surprise 0.4% increase, against expectations of a decline, suggests underlying price pressures are stickier than anticipated. This complicates the path forward for the Bank of Canada and forces a re-evaluation of rate cut expectations.<\/p>\n
We see this as a signal to reduce bearish bets on Canadian interest rates. Derivatives like options on Canadian bond ETFs or interest rate swaps that benefit from stable or higher rates are now more attractive. With the market having priced in a series of rate cuts, this unexpected inflationary data creates an opportunity to position against that consensus.<\/p>\n
The surge in raw material prices, driven by an 8.2% jump in conventional crude oil, is a primary concern. We should consider long positions in derivatives tied to the Canadian energy sector, such as call options on major producers or oil futures. The Canada Energy Regulator recently projected record oil production for 2024, but current price strength, fueled by geopolitical factors, is the more immediate driver for short-term trading.<\/p>\n
The significant rise in non-ferrous metals, particularly the largest monthly platinum increase since 2012, points to a strong speculative and industrial bid. To capitalize on this, we can use derivatives on precious metal miners or ETFs, as the underlying supply tightness is confirmed by external analysis. The Silver Institute, for instance, forecasts a significant structural market deficit for 2024, supporting a bullish stance on silver-linked assets.<\/p>\n
Food inflation is also re-accelerating, with notable increases in meat and cooking oils. We should explore derivatives on agricultural commodities like canola, especially as Statistics Canada has reported a year-over-year decrease in seeded area, reinforcing the tight supply mentioned in the report. This suggests that price strength in agricultural products could persist through the summer.<\/p>\n
However, the report also shows declining prices in sectors like vehicles and electronics, indicating that inflation is not uniform across the economy. This divergence between raw material strength and finished goods weakness suggests increased market volatility ahead. We believe strategies that profit from price swings, such as long straddles on the S&P\/TSX 60 index, could be prudent.<\/p>\n
This data directly challenges the outlook for monetary policy, making a follow-up rate cut in July less certain. After this report, overnight index swaps are now pricing in less than a 50% chance of a July rate cut from the Bank of Canada. We should therefore watch derivatives tied to central bank policy, like Bankers’ Acceptance futures, for signs of a hawkish repricing.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Canada’s industrial prices rose unexpectedly in June, driven by metals, chicken demand, and rebounding energy products.<\/p>\n","protected":false},"author":62,"featured_media":17028,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-26867","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/26867","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=26867"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/26867\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17028"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=26867"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=26867"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=26867"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}