IDEX Online Research: Jewelry Price Inflation Cools in May
June 28, 11(IDEX Online News) – Jewelry price inflation at both the retail and supplier levels moderated somewhat during May. While certain underlying commodities continue to climb in price – notably polished diamonds and gold – other commodity prices such as silver and platinum appear to have plateaued, at least during the month of May.
The full analysis is available to IDEX Online Research subscribers and IDEX Online members here.
The inflation pace for retail jewelry prices slipped modestly from the prior month, but is still running well above historical levels, as retail merchants attempt to recoup deteriorating margins caused by sharply rising wholesale prices over the past year and a half.
Jewelry Price Inflation Moderates in May
Worldwide, inflation paused in May as commodity traders evaluated the prospects for the global economy. The key question: can the current economic recovery be sustained? In addition, there have been many external factors which have spooked commodity prices: unrest in oil-producing regions of the Middle East, political dissent in Northern Africa, a weaker U.S. dollar, high unemployment in the U.S., sluggish gains in Europe, and the prospects of slower growth in China.
While the jewelry industry has been somewhat immune from the day-to-day volatile swings in the markets, the overall inflation indices for the industry reflect a slower pace for inflation.
The graphs below summarize trends in both the Jewelry Producer Price Index (JPPI) and the Jewelry Consumer Price Index (JCPI).
The JPPI index (graph below), a measure of jewelry prices at the wholesale level, has been flat for the past two months.
Source: BLS |
The PCPI Index, a measure of retail jewelry prices, declined slightly in May, but is still up more than 7% from the prior year.
Source: BLS |
The table below summarizes inflation in the U.S. jewelry industry for the month of May 2011.
Inflation Component May 2011 vs May 2010 May 2011 vs April 2011 Retail – All Jewelry & Watches +7.4% (0.4%) Retail Jewelry +8.4% (0.4%) Retail Watches +1.1% (0.5%) Supplier – All Jewelry & Watches +11.3% +0.2% Supplier – Precious Metal Jewelry +12.8% +0.9% Supplier – Watches +2.2% (0.1%)
Retail Jewelry Price Inflation Running High
Retail jewelers are playing catch-up. Wholesale prices of jewelry have been rising sharply for a year and a half, squeezing margins for retail merchants. Retail price inflation for jewelry remained low, due primarily to retail merchants who did not want to scare off customers with higher prices, just as the economy was emerging from a major recession. However, we have reached the point where retailers cannot absorb any more cost increases without passing them along to their customers.
Further, the correlation between higher wholesale jewelry prices and rising retail jewelry prices reflects the industry’s slow inventory turn – about one time per year. Wholesale prices began rising in the third quarter of 2009, but retail prices did not begin rising until late in the fourth quarter of 2010, about a year later. In short, it has taken about one year for higher wholesale prices to flow through to retailers.
However, despite rising retail prices, the inflation rate for jewelry at retail continues to lag significantly behind wholesale price inflation, as the graph below illustrates.
Source: BLS |
Outlook: Inflation Is Inescapable
The choppy economic recovery has created a foggy picture of jewelry price inflation. If we eliminate the “fog” we find an industry faced with a finite number of diamonds, using a volatile financial commodity – gold – extensively, and facing increased labor costs as suppliers in Asia, India, and China must pay higher wages to workers.
In the U.S., the Fed will end its stimulus program; this will calm inflation prospects. But most other developing countries not only do not have a national fiscal or monetary watchdog, but even if that had the equivalent of the U.S. Fed, it would not have the necessary control to battle inflation or support the economy in tough times (think Greece).
Thus, it seems that the jewelry industry must accept “natural forces” as its regulator. In short, demand and supply – the basic tenets of capitalism – will be the ultimate arbiters of inflation. If that is so, jewelry prices at all levels are headed higher.
The full analysis and statistics on jewelry industry inflation in May is available to IDEX Online Research subscribers and IDEX Online members here. Click here for more information on how to subscribe or become a member.