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at the bell

Canadian manufacturers are seeing commodity costs climb this year, while the average price producers have received at the factory gate for their wares has declined almost steadily since mid-2008.

The raw materials and industrial product price indexes, released Thursday, are expected to show costs continue to outstrip prices.

What are the expectations?

Industrial product prices in June are forecast to have increased only 0.1 per cent, compared with the 1.1-per-cent plunge in May, according to a survey of economists by Bloomberg.

Since mid-2008, prices have declined at an average monthly rate of about 0.55 per cent.

Meanwhile, the raw materials prices index is forecast to have increased 3 per cent in June, compared with a 2.2-per-cent rise in May.

"I would look at the raw materials index as being driven more by the sprint in energy prices in June," said John Clinkard, chief economist for Canada with Deutsche Bank AG. However, the price of oil has backed off and it appears to be trading within a range of $60 to $70 a barrel, he said.

"That will tend to moderate raw material prices going forward."

How will markets react?

As far as pricing power goes, manufacturers could gain some leverage as a result of plant shutdowns, Mr. Clinkard said. "My sense is capacity pressure will increase as we move into the remainder of the year."

Still, a strong Canadian dollar continues to hurt producer prices by effectively reducing the gains on exports, said Stewart Hall, an economist with HSBC Securities Canada Inc. He estimates the 2.8-per-cent rise in the loonie against the U.S. dollar during June lowered producer prices about 0.7 per cent. Also, pulp and paper, agricultural products and chemicals prices fell.

"You are not going to see pricing power return until you have full-fledged global economic recovery," he said.

"Stock market opportunity is very definitely in sight and you see that occurring in many ways," said Michael Smedley, chief portfolio manager of Canadian General Investments Ltd., a closed-end fund.

"You can see a glimmer of interest in pulp, paper and lumber, which have been interminable weak spots of Canadian industry." There is a sense those could improve, Mr. Smedley said. "I haven't invested in any of them, but I have started to look."