IDEX Online Research: Jewelry Price Inflation Differs Sharply Between Suppliers & Retailers

The spread between jewelry price inflation at the retail level versus the supplier level has widened in July. The Jewelry Consumer Price Index (JCPI) showed that there was virtually no price inflation for jewelry among America’s retail merchants. However, at the supplier level, the Jewelry Producer Price Index (JPPI) rose at a startling rate.

·        Retail jewelry prices rose by 0.3 percent in July, well above last year’s average of 1.8 percent level for the full year, and above a 1.3 percent inflation rate for 2010 year-to-date.

·        Suppliers’ jewelry prices surged by 10.1 percent this year, far above last year’s average of +3.6 percent and above 2010 year-to-date’s inflation rate of 9.7 percent.

For the past year, jewelry suppliers’ prices have been rising steadily and sharply, but jewelry prices at the retail level have remained moderate. This has caused a margin squeeze, particularly among retailers.

The graph below summarizes both the Jewelry Consumer Price Index (green bars) versus the Jewelry Producer Price Index (red bars).

What is pushing producer prices higher? Much of the pressure is coming from higher precious metals prices. During May, June and July, gold prices averaged just over $1,200 per ounce, a trend that continues into August. In prior months this year, gold averaged closer to $1,100 per ounce. Platinum has averaged between $1,500 and $1,600 per ounce for most of 2010. While this is below the levels of just over $2,000 that were experienced in 2008, today’s prices are still well above historic platinum price levels over the past decade.

The table below summarizes the JPPI and JCPI and their major components for July 2010 as compared to the same month a year ago.

Our outlook for jewelry price inflation: retail and supplier prices are headed higher. As the global economy recovers, demand for precious metals for all producer and consumer sectors will increase. Further, though demand is choppy, there are already signs that consumers are returning to their former buying habits for discretionary goods, including jewelry. This means that demand will increase, and price increases will inevitably follow.

In addition, the lack of retail price inflation in the face of high producer price inflation is unsustainable. Thus, retail prices are headed higher – it’s only a matter of time.

When will this dichotomy between jewelry supplier prices and retail jewelry prices rectify itself? We would have expected that the trend would have reversed itself long ago. However, with uncertain demand at the consumer level, retail jewelers simply won’t raise prices. Suppliers have no choice: higher precious metal prices have caused them to pass along those costs to retail merchants.

The full analysis about jewelry prices at the producer level and the consumer level in the U.S. is available to IDEX Online Research subscribers and IDEX Online members. Click here for more information on how to subscribe or become a member.