Canadian factory PMI hits near four-year high on war-related stock building

By Fergal Smith

TORONTO, May 1 (Reuters) - Canada's manufacturing sector expanded in April at the fastest pace in nearly four years as the war in the Middle East spurred stock building and added to inflation pressures, data showed on Friday.

The ?S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) rose to 53.3 last month from 50.0 in March, marking the highest level since June 2022. A reading above 50 shows ?expansion in the sector.

"Lifting the lid on the latest headline PMI, whilst also drawing on the qualitative evidence of our respondents, suggests the April number should be treated with some considerable caution," Paul Smith, economics ?director at S&P Global Market Intelligence, said in a statement.

"Growth appears to be driven by worry rather than any meaningful or permanent uplift in demand ... That's squarely due to the war in the Middle East and the associated energy price and supply shock, the effects of which are now cascading across global markets and leading to a scramble to secure stock and lock in prices with suppliers."

The stocks of purchases index rose to the highest level since August 2024 at 50.7, up from 49.7 in March. Two months into the U.S.-Israeli war with Iran, the Strait of Hormuz, a vital sea channel, remains closed, choking off 20% of the world's oil and gas supplies. That has sent global energy prices surging and heightened concerns about the risks of an economic downturn.

The output index increased to 53.4 from 49.6 in March and the measure of new orders was at 55.0, up from 48.7. New orders, particularly export orders, had been badly hampered by U.S. tariffs ?on critical sectors, such as autos, steel and aluminum.

Reflecting supply chain challenges, the measure of vendor delivery times dipped to 45.4 from 46.2 in March, posting the steepest deterioration since March last year.

Higher fuel and freight transportation costs added to the inflationary impact of tariffs to drive the input price index up to 64.8, its highest level ?since August 2022, while the output price measure was at 58.1, up from 55.3.

"Such developments will certainly be noted by central bank policymakers as they look to timely survey data to assess the degree to which inflation expectations are being raised," Smith said. On Wednesday, the Bank of Canada said if oil prices stayed high and began pushing up inflation, it might have to respond with consecutive interest rate hikes. (Reporting by Fergal Smith; Editing by Chizu Nomiyama)