IDEX Online Research: Jewelry Suppliers’ Prices Slip in October
December 08, 11(IDEX Online News) – After months of strong upward pressure, jewelry suppliers’ prices in the U.S. market showed modest deflation in October, according to new data from the government. In contrast, jewelry retail prices rebounded sharply from October’s pause. This disparity is good news for retail jewelers since it shows that they may be recovering some of the high costs related to surging jewelry commodity prices – diamonds and precious metals – over the past several quarters.
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Retail prices of jewelry rose by nearly 3 percent in October, when compared with retail prices in September.
Wholesale jewelry prices, in contrast, declined very modesty – by about 0.2 percent in October, when compared with wholesales jewelry prices in September.
Here’s what this means for the American jewelry industry: the margin squeeze that specialty retail jewelers have felt since 2009 has paused, if only briefly. With retail jewelry prices edging higher and supplier prices stable or down very slightly, jewelers’ profit squeeze could be relaxed. However, it is not possible to tell if this is a one-month anomaly, or if this is the beginning of a new short term trend. While jewelry commodity prices seem more or less stable in the current environment, they correlate somewhat to the global economic climate. According to the latest forecasts from the OECD, the economies of most of the diamond-consuming countries are expected to weaken in 2012. If demand fades, prices for jewelry commodities should also decline.
Inflation Remains Rampant At Supplier Level
Inflation continues to be a major challenge in the U.S. retail jewelry market. However, some of the inflation pressures eased during October when jewelry supplier prices declined very modestly, according to new government data.
Suppliers’ prices for jewelry in October soared by 17.5 percent over the same month a year ago. This was slightly less than the year-over-year increase of nearly 19 percent in September, the largest increase since we began keeping jewelry inflation statistics in 1980, more than 30 years ago. October’s large gain was driven almost entirely by rising prices for gold and other precious metal jewelry, which were up by over 22 percent in the month, year-over-year.
The graph below illustrates that suppliers’ jewelry prices have been climbing steadily since 2010, with a pick-up in the pace of inflation in early 2011, followed by a pause in October.
Source: BLS
Retail prices of jewelry were up 11 percent in October versus the same month a year ago. This was the largest jump since 1988, when the government’s Bureau of Labor Statistics (BLS) began using the current data base. Jewelry prices were up only modestly in October 2010, so this year’s comparison was against an easy comparison last year.
The graph below illustrates that retailers’ jewelry prices have been rising steadily since 2010. In early 2011, retail jewelers raised prices because they felt that 1) the economy was poised for a solid recovery; and, 2) consumers would likely tolerate higher jewelry prices. That “kink” in the inflation curve is clear in January 2011. The good news is this: based on recent sales trends, higher jewelry prices during most of 2011 have had no negative impact on consumer demand for jewelry.
Source: BLS
The table below provides a detailed summary of inflation rates in the U.S. jewelry industry for the following: 1) year-to-year price comparison for the month of September; 2) month-to-month price comparison for October 2011 versus September 2011; and 3) 10 months year-to-date 2011 price comparisons versus the same 10-month year-to-date period in 2010.
Source: Various Markets |
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, precious metals are used by a number of other industries; further, gold is an international currency that plays in an arena of its own.
· Industry Outlook – Demand from emerging economies such as India and China will help fuel sales of jewelry in those nations. Thus, the longer term outlook for jewelry demand is very positive.
· 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.
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