IDEX Online Research: Jewelry Price Inflation Moderates

After surging during most of 2006, jewelry prices at both the producer and the consumer level have moderated notably in the early months of 2007. 

• Jewelry Producer Prices were up a very modest 1.1 percent in April, the smallest gain since early 2004.
• Jewelry Consumer Prices were up 4.4 percent in April, the smallest gain in the past three months. The pace of jewelry price increases at the retail level is clearly decelerating. 

Our outlook calls for moderation of both jewelry producer prices and jewelry consumer prices this year. While consumer retail prices of jewelry are expected to continue to creep upward over the next several months as jewelers take the opportunity to raise prices to reflect higher materials costs that they were not able to pass on to their customers in 2006, slackening demand will keep them from rising rapidly. With the U.S. economy slowing noticeably and gasoline prices rising, demand for discretionary goods such as jewelry will moderate this year.

Producer Prices Show Miniscule Gain

It is no surprise that the U.S. Jewelry Producer Price Index showed only a modest gain in April: the price of key materials components – precious metals and gemstones – has held in a moderate trading range for the past few months. The following graph summarizes Jewelry Producer Price trends.

• Diamonds – After sagging in much of 2006, polished diamond prices have begun to firm, with gains in the 1-2 percent range for the first four months of 2007. Jewelers’ sales of loose diamonds and diamond jewelry represent about 50 percent of total retail volume, by value. Thus, prices of jewelry at both the producer and consumer level are influenced much more by diamond prices than by any other commodity used in jewelry manufacturing.  

• Gold – After gold prices surged on a monthly year-over-year basis by as much as 60 percent in 2006, price increases this year have moderated to a range of 10-20 percent compared to the same month a year ago. By value, gold represents about 30 percent of the retail value of all jewelry sold; this includes the value of the gold in diamond jewelry and all other jewelry categories. Thus, gold prices have a significant impact on jewelry prices at the producer and consumer level.

• Platinum – After dramatic increases in the 40-50 percent range during 2006 on a year-over-year basis, platinum price increases are showing more modest gains in the 10-15 percent range this year, when compared to the same monthly periods last year. The value of platinum is a modest portion – about 2 percent – of total jewelry retail sales in the U.S. Thus, while platinum prices have surged, they don’t have a meaningful impact on aggregate producer or consumer jewelry prices.

• Silver – During 2006, silver prices surged, nearly doubling in May 2006 over the same month in 2005. This year, silver price gains have “moderated” to 30-40 percent increases in the first three months of the year, and showed a very modest 9 percent gain in April. Despite surging prices, the value of all the silver used in jewelry production in the U.S. is miniscule – perhaps only 1-2 percent of the total retail value. Among less expensive fine jewelry and costume jewelry, rising silver prices have had a notable impact on producer prices. However, in the aggregate, higher silver prices haven’t been felt by most mass market or guild jewelers.  

Jewelry Consumer Price Increase Slows
Depending on the analysis, consumer prices for jewelry lag producer prices by three to nine months. For example, there was a spike in jewelry producer prices in May 2006, but there was arguably no similar spike in consumer prices until February 2007. However, there was a surge in jewelry producer prices in the November-December 2006 period that appears to have begun to work its way through the pipeline in February 2007. It is likely that retail jewelers resisted increasing prices during the all-important holiday selling season of November and December, but took the opportunity to reflect increased costs, both from the spring 2006 price hike and the 2006 year-end price hike in retail prices early this year.

Outlook:

Prognosticators are calling for a slowing of economic growth in the U.S. Indeed, first quarter Gross Domestic Product growth was a disappointing 1.3 percent. Traditionally, when economic growth slows, demand for jewelry slows. If demand weakens, neither jewelry producers nor jewelry retailers will be able to raise prices. Thus, jewelry price inflation will not be pressured by a surging economy.

However, the economic picture does not tell the full story. Retail consumer prices of jewelry are likely to continue their creep upward, though that creep will be capped by a weak economy. With the Valentine’s Day and Mother’s Day sales events out of the way, jewelers will likely use the six-month period between Mother’s Day and the 2007 holiday selling season as an opportunity to raise retail prices.