IDEX Online Research: Jewelry Price Inflation Higher At Supplier & Retail Level
December 28, 10(IDEX Online) - Retail and wholesale jewelry price inflation rose in November, based on the latest price inflation data from the U.S. government’s Bureau of Labor Statistics.
Jewelry Price Inflation Up: 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. And, now, with November data, inflation is clearly a significant factor in the jewelry industry.
Jewelry Price Inflation Disparity Continues: 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 again in October and November.
Chain Raise Prices: 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. Some jewelers also have said that they plan to raise prices early in the first quarter of 2011, prior to Valentine’s Day. With demand strong, there appears to be less consumer resistance to higher jewelry prices.
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 November by 10.3 percent, when compared to November 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 November was at about the same inflation rate for all other jewelry. This is particularly curious, since gold prices spiked in October, and remained high in November. Clearly, it appears to take a while for higher precious metals prices to work their way through the distribution channel.
The Jewelry Producer Price Index 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, followed by a double-digit gain in November.
The graph below summarizes the monthly Jewelry Producer Price Index – jewelry price inflation at the supplier level – for 2009 and 2010.
Source: BLS
While the Jewelry Producer Price Index averaged a very modest +3.3 percent inflation rate in 2009 during a recessionary environment when demand was soft, it has averaged 9.4 percent for the first eleven months of 2010.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. Further, higher commodity prices and higher labor costs are also pushing up wholesale jewelry prices.
On an absolute basis, jewelry producer prices are at their highest level this decade. Suppliers are charging prices that are as much or more than at any time in the recent past.
JPPI Driven Somewhat By Higher Precious Metals Costs Earlier This Year
Precious metals prices have remained high for the past several months, and gold prices spiked in October, and remained high in November. 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 Remain Weak in November
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 and November, suppliers’ prices for watches barely rose, as the graph below illustrates. October and November’s modest watch price inflation rate of +0.6 percent brought the year-to-date watch price inflation rate down to +1.5 percent.
Source: BLS
Jewelry Consumer Price Inflation (JCPI) Rises in November
Retail prices of jewelry in November, as measured by the JCPI, were up 3.4 percent, the second largest monthly gain in 2010, after August’s gain of 3.6 percent.
After edging upward for the first six months of 2010, then slowing in July, the August and September rise 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. With the solid increase in inflation in November, the year-to-date JCPI now stands at +1.8 percent, in line with 2009’s average retail jewelry inflation rate of +1.8 percent. It remains far below 2008’s inflation rate of 6.9 percent. But it is exactly in line with the long-term two-decade average of +1.8 percent annually.
On an absolute base, retail jewelry prices are at their highest level in this decade, based on the government data.
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. In November, they rose by a miniscule 0.1 percent - essentially, watch prices at retail were flat.
On an absolute base, retail watch prices are about 3 percent to 4 percent below their highs experienced in 2006 through early 2008, based on the government data.
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. In November, the 0.1 percent rise in watch prices (gold bar) is too small to show up on the graph.
Source: BLS
Outlook: Inflation Won’t Go Away
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.