rdmThumbINFLATION advanced 40 basis points to 1.0 percent in September according to the Office for National Statistics, and yet furniture price deflation widened to a 16-year record of minus 3.0 percent, writes The Furnishing Report editor Richard de Melim.

This seems to fly in the face of logic and received wisdom. Since the Brexit vote, talk across the industry was of prices rises coming, which was understandable given the fall in the pound against the dollar since the morning of 24th June (see chart).

pound dollar Chart 19 10 2016That affects everybody, from the obvious — such as furniture importers paying for goods and shipping in dollars — to UK manufacturers, who don’t exist in a vacuum, but instead must source raw materials, components and services in a variety of currencies where, somewhere along the line, the dollar will be involved.

I think two things are going on. One is strategy. The year-on-year fall in September was just that: a comparison with the previous September, and wasn’t the result of discounting between August and September. Whereas last year prices went back up after summer sales, this year they didn’t do so by as much, resulting in the biggest year-on-year drop in prices since March 2000.

Retailers are understandably nervous — they’ve been told price hikes are coming! — but they are also seeing double-digit growth enjoyed pre-June turn to single-digit growth post-June as the growth in demand has begun to flag. That’s the consensus view from having spoken to a number of retailers.

The other issue is that September’s figures are too soon to incorporate any price rises imposed by the supply chain. At the Manchester Furniture Show in July, most companies I spoke to told me that it would be the autumn before prices were hiked. One of the main reasons for this was because many companies will have currency hedges in place so wouldn’t necessarily have been instantly impacted by input cost inflation. Also, frankly — who wants to be first? There was bound to be a wait-and-see effect.

But the latest figures — which show input cost inflation for UK manufacturers is running north of 7 percent — do indicate the pressures furniture makers are under.

The price rises are still coming, and they are justified.

So what of the headline? Well, different factors are at play here. Firstly, figures I’ve seen don’t indicate the bed-in-a-box market is growing anything like as fast as some would have us believe. With all the talk — there are other, stronger words that could be used — about the mattress industry being reinvented, it would be easy to ignore that cheap rolled mattresses have been around for years. There is a lot of displacement of sales, with the main beneficiary appearing to be cardboard box and packaging manufacturers.

The other point is differentiation. The proposition just appears so similar in so many cases. If the bed trade can’t tell these mattresses apart, what hope has the consumer? Surely in the fullness of time — a year, two maybe — will this not just become a race to the bottom?

Am I wrong? Tell me, and we’ll publish it.

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