IDEX Online Research: Jewelry Supplier Price Inflation Pauses in October
December 07, 11(IDEX Online) – For the month of October 2011, jewelry supplier price inflation paused on a month-to-month basis: down 0.2 percent from September 2011. This was a dramatic change in trend from the past several quarters. Further, the year-over-year gain moderated slightly from the prior month: it was up 17.5 percent over October 2010.
In contrast, retail jewelry prices in October jumped to record levels, after either languishing or posting only small monthly gains for the past few months.
The bottom line of these two events: the pressure on jewelry retailers’ margins eased in October.
The table below summarizes the components of jewelry price inflation at various levels in the distribution channel and by commodity group.
Source: various markets |
Jewelry Suppliers’ Price Inflation Moderates in October
September’s jewelry supplier price inflation rate of 17.5 percent was nearly double the jewelry supplier inflation rate of 9.3 percent for the full year 2010, and it was multiples above 2009’s supplier inflation rate of 3.3 percent. However, it reflected a slightly lower rate of price increases from September’s inflationary surge of 18.6 percent.
After ten months of 2011, jewelry supplier price inflation is up by 13.6 percent, an unusually high level.
The graph below summarizes year-over-year jewelry supplier price inflation on a monthly basis.
Source: BLS |
Higher Precious Metal Prices Continued to Drive Inflation Pace
Jewelry suppliers’ prices of precious metals jewelry rose by a dramatic 22.4 percent during October 2011 versus the same month a year ago. This was notably above jewelry suppliers’ overall inflation rate for all jewelry and watches of 17.5 percent for the month, and it was a record level in the current post-recession recovery period.
On a month-over-month basis, jewelry suppliers’ prices for precious metal jewelry reflected inflation of 3.0 percent in October versus September. On an annualized basis, this would suggest that suppliers’ jewelry prices could rise by 36 percent or so. While we think that supplier price inflation for precious metals won’t hit a 36 percent annual rate of gain, we also did not think it could hit a mid-to-high teen rate of inflation. Capitalism – supply and demand driven pricing – is sometimes unpredictable.
The graph below compares the jewelry supplier inflation rate for precious metals jewelry (gold columns) versus the overall jewelry supplier inflation rate for jewelry (red columns). These comparisons are year-to-year.
Source: BLS |
Watch Price Inflation Steady for Past Three Months
Watch prices at the supplier level in October showed a moderate gain – +1.3 percent – when compared to the same month a year ago (October 2010). This level of inflation is reminiscent of inflation trends in 2009 and early 2010, when watch prices rose by a low single-digit level at the supplier level.
However, in October 2010, watch price inflation suddenly disappeared, on a year-to-year basis, and was nearly non-existent for six months. Therefore, comparisons were easy this year. Then, watch price inflation spiked for four consecutive months beginning in 2011: April, May, June, and July 2011. In August, watch price inflation year-to-year declined to a much more modest gain of 1.1 percent, roughly in line with September and October.
On a month-to-month basis – October 2011 versus September 2011 – supplier prices of watches were down slightly – 0.3 percent. After ten months of 2011, watch prices are up a modest 1.5 percent year-to-date.
In recent months, watch demand and watch sales in the
The graph below shows year-to-year supplier price inflation for watches for the past twenty-four months.
Source: BLS |
Jewelry Retail Prices Stronger in October
Jewelry retail prices have been climbing steadily since November 2010, driven by both stronger consumer demand and higher supplier prices.
For the month of October 2011, retail jewelry prices – all categories of merchandise – rose by 11.0 percent over October 2010. This was the largest increase on record, since the BLS began keeping the current database of statistics in 1988, more than two decades ago.
On a month-to-month basis, retail jewelry prices in October were up 2.6 percent, when comparing October 2011 to September 2011. Comparing the first ten months of 2011 versus the same ten-month period last year, retail jewelry prices are up by 8.6 percent. This is one of the largest gains on record.
The graph below summarizes year-to-year retail jewelry price inflation in the
Source: BLS |
Watch Prices Show Moderate Inflation
Retail and supplier prices of watches have tended to move together, with prices generally flattish with solid support, both on a month-to-month basis and a year-to-year basis, over the past few years.
For the month of October 2011, retail watch prices rose by 3.1 percent from October 2010. That’s below the level of last month’s inflation rate of +3.4 percent; further, it was also above the year-to-date (January-October 2011 / January-October 2010) inflation rate of 1.5 percent. When compared to the prior month of September 2011, watch prices in October declined by 0.3 percent.
Retail prices of jewelry, excluding watches, were up 12.2 percent in October 2011, when compared to October 2010 prices. When compared to the prior month – September 2011, retail prices of jewelry (only) rose by a relatively solid 2.1 percent.
The graph below compares the inflation rate for jewelry and watches (green bars), jewelry only (red bars), and watches (gold bars).
Source: BLS |
October Jewelry Inflation Causes Disparity between Retail & Supplier Prices to Narrow, But Only Slightly
Good news: while jewelry suppliers’ prices continue to rise faster than retail jewelry prices, the year-to-date disparity declined by ten basis points in October. That isn’t much, but it is the right direction.
The graph below summarizes the recent disparity between retail jewelry price inflation and suppliers’ jewelry price inflation on an annual basis. Since the mid-1990s, with only a few exceptions, suppliers’ jewelry prices have risen more rapidly than retailers’ jewelry prices. Thus, this has created a long-term margin squeeze that has plagued jewelers for years.
Source: US Dept of Comm. |
Jewelry Inflation Outlook: Uncertainty Near Term, Higher Long Term
It would be easy to forecast inflation for the jewelry industry if all of the commodities involved in the forecast were used exclusively by the jewelry industry. While that may be the case for polished diamonds, a number of other industries uses precious metals; further, gold is an international currency that plays in an arena of its own.
· Industry Outlook – Demand from emerging economies such as
· Economic Outlook – The latest OECD data points to decelerating economic growth, which will likely hinder consumer demand near term.
· Financial Outlook – With increased volatility in the world’s stock markets and uncertain valuations related to stocks, bonds, and other hard assets, investors are likely to move to the safe haven that gold offers.
The bottom line: inflation may pause, but it is headed higher over the longer term. Jewelry suppliers and retailers should use periods of weakness in commodity prices to add to their inventory.