IDEX Online Research: Jewelry Price Inflation Higher At Retail
November 28, 10(IDEX Online) - The wide disparity between retail jewelry price inflation and supplier price inflation that has characterized the jewelry industry for the past year appeared to moderate in August and September 2010, but picked up in October.
After only very modest retail price inflation in May and June, followed by virtually no retail price inflation in July, the data for August and September broke a year-long trend. This was followed by October’s more moderate inflation rate.
Several retail chain jewelers announced price increases during the first and second quarter of 2010, and more retail price increases were implemented early in the third calendar quarter, in time to take effect in the 2010 holiday selling season.
Unfortunately, with the lack of solid retail demand, neither wholesalers nor retailers have pricing power, and the result of a moderation of inflation.
Jewelry Producer Price Inflation Continues to Rise, But More Moderately
Producer prices for jewelry, as measured by the Jewelry Producer Price Index (JPPI), rose in October by 9.1 percent, when compared to October 2009.
While inflation in prior months has been driven primarily by higher prices of precious metals – mostly gold and platinum – the inflation rate of precious metals jewelry in October was below the inflation rate for all other jewelry. This is particularly curious, since gold prices spiked in October. Clearly, it takes a while for higher precious metals prices to work their way through the distribution channel.
The JPPI – jewelry price inflation at the supplier level – has shown gains in the high single-digit range or low double-digit range for all of 2010 as well as the fourth quarter of 2009. Producer prices have risen at double-digit levels for the seven prior months, before posting only a high single-digit gain in October.
The graph below summarizes the JPPI for the past twenty-four months.
Source: BLS
While the JPPI averaged a very modest +3.3 percent inflation rate in 2009 during a recessionary environment when demand was soft, it has averaged 9.3 percent for the first ten months of 2010. (The BLS revised its data mid-year; these new figures are based on BLS revisions.)
In part, price increases were implemented earlier this year by suppliers who wanted to make up for their inability to raise prices in late 2008 and early 2009 when gold prices were soaring. Due to the recessionary environment in 2008 and 2009, suppliers could not pass along those higher gold prices to their customers. However, if current trends continue, wholesale price inflation could moderate further over the next few months. We note that this is likely to be only a short term trend; longer term, inflation will return.
JPPI Driven Somewhat By Higher Precious Metals Costs
Precious metals prices have remained high for the past several months, and gold prices spiked in October. These high prices have pushed supplier prices up, as the goods with high-priced metals have worked their way through the distribution pipeline toward retailers. The graph below compares the JPPI for all jewelry producer prices (red bars) to the JPPI for precious metal jewelry costs (yellow bars).
Source: BLS
Watch Prices Moderate In October
Producer price inflation for watches has held relatively steady in the 1.5-2.0 percent range for the past fourteen months or so, as the following graph illustrates. It averaged 1.7 percent for the nine months year-to-date in 2010. However, in October, suppliers’ prices for watches barely rose, as the graph below illustrates. October’s modest watch price inflation rate of +0.6 percent brought the year-to-date watch price inflation rate down to +1.6 percent.
Source: BLS
Jewelry Consumer Price Inflation (JCPI) Slows In October
Retail prices of jewelry in October, as measured by the JCPI, were up just 1.6 percent, one of the more modest monthly gains in 2010.
After edging upward for the first six months of 2010, then slowing in July, the August and September spike in inflation caused the year-to-date JCPI to edge up to +1.7 percent. Despite weak price inflation in October, the year-to-date average was unchanged. This year-to-date inflation rate for retail jewelry prices remains just below 2009’s average retail jewelry inflation rate of +1.8 percent; it also remains far below 2008’s inflation rate of 6.9 percent. It is modestly below its long-term two-decade average of +1.8 percent annually.
The graph below summarizes the JCPI for the past twenty-four months.
Source: BLS
For the past year, the key components of the JCPI – jewelry (only) and watches (only) – showed a dramatic spread in their inflation rate. Watch prices fell sharply at retail, while jewelry prices are rose faster than the overall JCPI. Watch sales have historically been about 11 percent of total jewelry industry sales, while jewelry of all types represents about 89 percent of total U.S. jewelry sales.
However, in August, retail prices of watches finally began to climb, after thirteen months of declining. But that trend reversed itself in September: watch prices fell by 0.8 percent during the month, when compared to September 2009, a recessionary period when jewelers had no pricing power. Watch retail prices fell further in October – by 0.9 percent.
The graph below illustrates inflation among the key components of the JCPI. The green bars are total industry JCPI, while the red bars represent the inflation rate jewelry (only), and the gold bars represent the inflation rate for watches (only). Notice that the gold bar – watches – for August 2010 is in positive territory for the first time since June 2009, but fell back in September and October.
Source: BLS |
The Disparity Continues Between Producer & Consumer Jewelry Price Inflation
The disparity between inflation at the jewelry producer level and the jewelry retail store level is still large, but it may be abating. For the past year, higher wholesale prices have added stress to retailers’ and suppliers’ margins, which are already under pressure.
While the economic recovery has been slow, growth is on the horizon. Along with growth comes inflation. The jewelry industry won’t be left out of the next round of inflationary pricing, in our opinion. However, it won’t happen until 2011, based on our forecast.
The graph below summarizes more than two decades of retail jewelry price inflation as well as our prediction for 2010.
Source: BLS