Following in the footsteps of the U.S. Consumer Price Index, jewelry prices at both the producer level and the consumer level retreated moderately in July. Jewelry prices at the producer level rose at an annual rate of 7.6 percent, down from the past two months when prices surged. Retail prices for jewelry rose by a more moderate 4.9 percent in July, somewhat less than the price spike that occurred in June.

 

Meanwhile, factors fanning the flames of inflation faded notably in July in the U.S. Core inflationary pressures at both the producer level and the consumer level moderated. Energy was the only major inflationary category, and there are signs that global oil prices may be poised to drop. As a result of this double dose of good news, it is apparent that the Fed made the correct decision when it took a pause from raising interest rates in America.  

 

Moderating Commodity Prices Take Pressure off Jewelry Producer Costs

Jewelry producers felt the impact of moderating commodity costs in July. As a result, the Jewelry Producer Price Index showed a more moderate gain – +7.6 percent in July – down from June’s +8.2 percent and a record +11.5 percent in May. The graph below summarizes trends in the Producer Price Index for jewelry and jewelry products.

 

Source: BLS

 

While gold prices were volatile in July, prices for silver, platinum, and palladium were more stable. Prices of these precious metals at the end of July were roughly where they started at the beginning of the month.

 

Polished diamond prices also showed little movement in July. They were basically flat during the month, and they were up a very moderate 0.4 percent over July 2005.

 

The graph below summarizes trends for platinum and gold jewelry. While it tracks closely with “all jewelry” (graph above), it shows more volatile swings in producer prices of these key precious metals jewelry. For example, platinum and gold jewelry prices increased by 13.6 percent in May, more than two percentage points above the producer price increase for “all jewelry,” which rose by 11.5 percent. 

Source: BLS

Retail Jewelry Prices Up

As a result of higher costs from suppliers, retail jewelers in the U.S. have been raising their retail prices. In July, retail prices of jewelry rose by 4.9 percent on an annualized basis. This represents some moderation from June’s 5.4 percent price increase. The graph below summarizes the Jewelry Consumer Price Index for the U.S.

 

Source: BLS

 

Macro Economy: Inflation Has Not Yet Been Tamed

While current inflationary trends appear to have moderated from prior months, there are some underlying fundamentals that show that inflation has not yet been tamed.

 

Excluding food and energy, producer prices for all categories of finished goods in the U.S. fell in July for the first time since October 2005. However, price increases for crude and intermediate goods continued to rise. Eventually, these unfavorable trends will flow through the distribution pipeline and affect consumer spending. In turn, that will affect shoppers’ expenditures for jewelry.

 

For consumers, core inflation remains relatively tame, excluding energy. A sharp drop in apparel prices was responsible for much of the moderation in consumer prices. This is a positive trend for jewelers. If consumers spend less on fashion goods such as dresses, they will have more money available for fashion accessories such as jewelry.

 

Jewelry Price Inflation

There are signs that the overheated commodities markets may be on the verge of pulling back. Certainly, global oil supplies are bloated. If oil prices take a tumble, precious metals prices won’t be far behind. This is because most of the recent pricing pressure of commodities is the result of financial speculators rather than supply and demand forces of the user markets. When commodities and financial traders run for the door – as they inevitably will – prices will be trampled.

 

We continue to believe that retail jewelers can price their goods at retail – and in their holiday seasonal flyers – based on wholesale prices near the current level. The Fed says inflation is under control, and we know better than to bet against the Fed.