While jewelry price inflation is not spiking as it did last winter, it continues to flare up from time to time, just to remind us that we should not get complacent. While the Jewelry Producer Price Index moderated in September, the Jewelry Consumer Price Index of retail prices rose notably during September.

 

• Jewelry Producer Prices +1.8% in September – Jewelry producer prices rose by 1.8 percent in September 2007, as calculated by the U.S. Bureau of Labor Statistics (BLS). This year-to-year measure compares producer prices for a market basket of jewelry in September 2007 to the same period in 2006. Based on adjusted numbers from earlier months, the current rate of price inflation at the jewelry producer level is running at about the average for this year; so far, this year’s jewelry producer prices have risen between 1.5 percent and 2.0 percent. Despite uncertainty levels about the key holiday selling season, jewelry suppliers have raised prices in an effort to recoup some of their cost increases this year.  
• Jewelry Consumer Prices +3.7% in September – Jewelry consumer prices – the retail price of jewelry in stores – rose by 3.7 percent in September 2007 versus the same period in 2006, according to the latest statistics from the BLS. Jewelry price inflation has been jumping all over in 2007 – up sharply one month followed by a dizzying decline the following month. When these sharp cycles are smoothed, the bottom line is this: jewelry retail prices have risen by about 5-6 percent in 2007. Retail prices of jewelry are up due to higher precious metals cost as well as due to higher producer prices for finished goods.

We believe that retail prices for jewelry will continue to rise in the remaining months of 2007. For the full year, it is likely that retail prices for jewelry will increase by about 4.5 percent to 5.0 percent, somewhat above our earlier predictions.

 

Our forecast for total jewelry sales in the U.S. is now slightly below this range for 2007. Thus, we expect unit sales of jewelry to be down very modestly for the year. Among jewelry producers, price increases are expected to remain moderate for the next few months.

 

Jewelry Producer Prices Moderate in September

Jewelry producer prices moderated somewhat in September, according to the Bureau of Labor Statistics. We had expected jewelry suppliers to restrain from raising prices, especially with the prevailing attitude of an uncertain holiday season. We remain much more confident about the 2007 holiday season than jewelry vendors, but it may take time for this confidence to spill over the vendor community. In the meantime, the September price hike is mostly related to passing along higher costs which vendors had absorbed earlier in the year.

 

The graph below summarizes monthly jewelry producer price inflation since the beginning of 2006. The figures are based on year-to-year comparisons of the BLS Jewelry Producer Price Index. 

 

U.S. Producer Price Index U.S. Jewelry 2006 - 2007 % Change Year-to-Year Source:  BLS

 

Jewelry Retail Price Inflation Continues to Climb

As we noted last month, retail prices of jewelry have been on a roller coaster ride since late last year. They spiked in the final months of 2006, and then moderated in the early spring of 2007. However, in June and July, jewelry prices at the retail level surged.

 

In August, retail price gains of a market basket of jewelry in the American market cooled, with a more modest level of inflation. However, in September, retail prices of jewelry rose notably. All comparisons are on a year-to-year basis; that is, September 2007 versus September 2006.

 

The graph below summarizes the percentage change in retail prices of jewelry and watches by month on a year-to-year basis since 2006. The percent change is based on a comparison to the same month a year ago.

 

U.S. Consumer Price Index for Jewelry U.S. Retail Jewelry & Watch Prices 2006 - 2007 % Change Year-to-Year Source:  BLS

 

Forecast: Inflation Fires Will Continue to Flare in 2008

For the remaining months of 2007, we expect retail jewelry prices to stabilize, followed by a return of inflationary pricing in 2008. Near term, there are two key reasons why we believe retail jewelry prices will stabilize:

 

• Most jewelers have already determined the retail prices for the upcoming holiday selling season; their promotional flyers have been printed, so the prices are already set.
• With relatively soft jewelry sales so far in 2007 at the mass market level, we believe jewelers are reluctant to raise retail prices much further.

Longer term, jewelry prices will rise due to two major factors:

• Commodity prices continue to increase. As precious metals prices rise, those costs will be passed along to consumers.
• Jewelers’ margins are squeezed. If jewelers are to make a reasonable return on their invested capital, they will need to raise prices to improve long term profits.