Jewelry price inflation at both the retail level and
the supplier level were almost nil in July. At the producer level,
prices were down 0.1 percent while they rose by a miniscule 0.3 percent
at the retail level.
What A Difference A Year Makes
How
does this year’s lack of inflation compare to just one year ago? The
following graph compares and contrasts the Jewelry Consumer Price Index
(JCPI) and the Jewelry Producer Price Index (JPPI) for July 2009 with
July 2008. Last year, the flames of inflation in the jewelry industry
were at record levels, running at about five-to-six times the level of
the long term run rate of 1.5 percent for inflation at both the retail
and supplier level. It is clear that inflation appears to have
disappeared.
Source: BLS |
Free-Market Economy Brings Prices and Inflation Back in Balance in Pipeline
In
addition to almost no price inflation in the pipeline in July, another
highly unusual trend ended in July. Last month, we asked the question
in our headline: “Retail jewelry prices down, supplier prices up. How
much longer?” We now have our answer: July. In a supply-and-demand
driven free-market economy, prices can’t diverge at different levels
for any length of time. Capitalism – and the forces of supply and
demand in a free market – will bring prices and inflation back into
balance eventually. That’s what happened in July.
Retail jewelry and watch price inflation (Jewelry Consumer Price Inflation – JCPI) has been dropping
virtually every month from its peak in August 2008, when inflation
reached 9.0 percent on an annualized basis. At the beginning of 2009,
jewelry and watch price inflation at the retail level had moderated to
4.9 percent annually; it has dropped each month this year, reaching
+0.3 percent in July.
Producer
price inflation for jewelry (Jewelry Producer Price Inflation – JPPI)
also showed a similar decline in 2008, but 2009 trends were exactly
opposite of retail consumer price inflation. Each month, the JPPI would
rise, but the JCPI would fall.
Any economist looking at these trends would scratch his or her head, and say, “This can’t last.” And, now, it is clear: it couldn’t last, and it didn’t last.
The
graph below summarizes the contradiction that JCPI and JPPI showed for
the first six months of 2009, followed by a major correction in the
JPPI in July. The Jewelry CPI is represented by the green bars, while
the Jewelry PPI is represented by the red bars.
Source: BLS |
Jewelry Price Inflation: July 2009
Here’s
the summary of inflation at the jewelry retail and supplier level for
the month of July 2009, as expressed as a percentage change
year-over-year (July 2009 versus July 2008) in the U.S. market:
* New JPPI measures
The
Bureau of Labor Statistics (BLS) recently developed several new
sub-categories for the Jewelry Producer Price Index, including “Other
Precious Metals Used in Jewelry” and “Jewelers' Findings &
Materials, Including Lapidary Work.” In the past, these items were
included in other categories. The new precious metals category includes
“Jewelry made of silver; jewelry made of other metals, but clad or
plated in gold, silver or platinum; jewelry made of precious or
semi-precious stones; and other miscellaneous jewelry products made
from precious metals such as cuff links and money clips.” April’s
inflation rate for this new category was +4.0 percent; May’s rate was a
deflation rate of 0.3 percent; June’s rate of inflation was 1.6
percent; and, as noted on the table above, July’s rate of inflation was
2.6 percent. These large swings suggest that there may be a sampling
aberration that needs correcting.
Further,
we have added a category to the JPPI – “watches and clocks.” While the
BLS has published this category for a while, it is not clear how much
weight “watches” have versus “clocks.” The BLS has also developed new
categories for silver jewelry at the producer level as well as jewelry
retail trade services at the store level (essentially jewelers’ labor
costs). However, these measures have only a couple of months of
history; hence, we will not report them, unless there are severe
swings, until we are satisfied that they are recording reality
properly.
Jewelry Producer Price Index (JPPI) (0.1 percent) in June U.S.
jewelry producer prices (JPPI) was nearly flat – down just 0.1 percent
in July 2009, according to the U.S. Bureau of Labor Statistics (BLS).
After rising for the first six months of 2009 – despite substantial
price weakness at the retail level, producer prices for jewelry finally
reflected reality: demand is weak, and downstream merchants simply
won’t accept higher prices. In prior months, we believe that sharply
higher prices for precious metals commodities drove up costs for
jewelry suppliers, who then attempted to pass along these costs to
their retail customers. That effort finally met failure in July.
Clearly, however, suppliers are now experiencing squeezed margins,
based on current commodity prices.
The
July JPPI was well below the average of the Jewelry Producer Price
Index for 2008, which averaged +6.3 percent for the full year, and the
+0.1 percent in July is also well below the annual inflation rate –
which averaged about +0.7 percent – that characterized the jewelry
producer industry in 2000 through 2002, also a recessionary period.
July’s inflation rate was also well below the long term Jewelry
Producer Price Index increase of about +1.4-1.5 percent annually.
The
following graph summarizes the monthly Jewelry Producer Price Index for
inflation since mid-2007. The percentage figures are based on
year-to-year comparisons of the BLS Jewelry Producer Price Index (July
2009 versus July 2008).
Source: BLS |
After
showing only very modest increases earlier this year, prices for both
precious metal jewelry and gemstone jewelry rose in the second quarter,
only to fall back in July. The graph below compares the JPPI (red bars)
to inflation for precious metals (gold bars); gold had been the primary
driver of precious metals inflation in 2007 and most of 2008. In
January 2009, gold prices pulled back modestly, but rose recently. In
our opinion, $1,000 gold has been priced into goods produced by jewelry
manufacturers. If gold goes higher, as some analysts suggest, that will
put further pressure on jewelry suppliers to raise prices.
As
the graph below illustrates, prices for precious metals used in jewelry
at the supplier (producer) level showed notable inflation, but
retreated in July.
Source: BLS |
Watch
price inflation at the producer level has bounced all around over the
past year. Like all producer prices, watch prices heated up in 2008,
only to begin a relentless decline in the second half of the year. By
January 2009, watch prices were reflecting deflation. However, watch
prices began to climb in the second quarter. In July, watch price
inflation collapsed, roughly in line with all jewelry supplier prices.
The following graph summarizes producer price inflation and deflation for watches in the U.S. market.
Source: BLS |
Jewelry Consumer Price Index (JCPI) +0.3 percent in July U.S.
jewelry consumer prices (JCPI) rose by +0.3 percent in July 2009, as
calculated by the BLS. After rising sharply through the second quarter
of 2008, jewelry price increases at the retail level moderated in the
late summer of last year, a continuing trend due primarily to the
current recessionary environment. July’s retail price inflation rate
was the smallest this year.
For
the full year 2008, retail price inflation for jewelry in the U.S.
market ran at an annual rate of +6.9 percent. Now, however, it is clear
that jewelry price inflation is moderating, and it will likely remain
lower than 2008 in the coming months, especially as we reach the
anniversary of last year’s price increases that jewelers implemented in
the second quarter of 2008. We had originally predicted that retail
jewelry price inflation might be flat in 2009; this is unlikely, but
the year-to-date average continues to fall each month. For the seven
months year-to-date, retail price inflation for jewelry is +2.4
percent.
The
graph below summarizes the percentage change in retail prices of
jewelry and watches by month on a year-to-year basis since the
beginning of 2008. The percentage change is based on a comparison to
the same month a year ago (July 2009 versus July 2008).
Source: BLS |
Watch Prices Show Deflation in July
After
bouncing around for several months, it became clear in the second
quarter of 2009 that watch price inflation at the retail level was
moderating. Early in 2008, the components of jewelry and watch price
inflation at the retail level reflected a disparity in price increases.
Jewelry retail prices were up consistently during the first half of
2008, but watch retail prices showed virtually no price inflation.
Earlier this year, watch price inflation steadily increased. In April,
watch price inflation slowed dramatically. In May, retail prices of
watches inched higher than in April, but the inflation rate was still
below earlier months in 2009. In June, watch price inflation diminished
significantly. In July, watch prices dipped – experienced deflation –
in the U.S. market. We expect watch price inflation to track more
closely to retail jewelry price inflation over the near term.
The
graph below illustrates the JCPI consisting of both jewelry and watch
prices (green bars), jewelry prices only (red bars), and watch prices
(yellow bars).
Source: BLS |
Outlook: Modest Jewelry Price Inflation in 2009
After
rising by nearly 7 percent in 2008, we continue to forecast much more
modest jewelry and watch price inflation during 2009. The wild card, of
course, is the price of commodities, including gold, silver, and
platinum. If investors continue to buy these commodities as hedges
against inflation – as historical economic recovery models suggest – it
will put upward cost pressure on jewelry suppliers, who will try to
pass those price increases along to retailers.
Our
current prediction calls for 2009 jewelry price inflation to be in the
low single digit positive level. The U.S. economy – which accounts for
roughly half of all jewelry demand worldwide (by value) – is showing
signs that the recession has bottomed (recently, one economist even
went so far as to declare that the recession had ended in June!). Thus,
if consumer demand recovers, we won’t experience price deflation;
instead, we could experience modest price inflation.
Site News
Site News
