In the summer of 2005, Eddie Hobbs opened the eyes of consumers around Ireland with his four-part TV show, Rip Off Republic. The show was a huge success, at least in terms of viewership, with the second show taking a 51% share of the audience that night, according to RTE. Given that prices increased by between 4% and 5% each year from 2006 to 2008, however, there were few who thought we’d actually broken the Rip-Off Republic.
Since then, though, Ireland has enjoyed/endured a combination of economic recession and falling prices. In January, consumer prices were at exactly the same level they were in late 2006 and only about 10% above 2004 price levels. Oddly, there are those that have reacted to falling prices in a recession as though it were a bad thing. For a small open economy in desparate need of a competitive devaluation, however, the significant fall in prices can only be a good thing. Hard-pressed consumers would also surely agree.
What do figures on retail sales in Ireland, released late last week, tell us about whether falling prices are a good thing or a bad thing for the Irish economy, both workers and consumers? The graph below shows a scatter of a dozen key retail sectors analysed by the CSO. The horizontal scale shows how the volume of sales in the sector in the first quarter of 2010 compared with the same figure in early 2007. You can see that some sectors have been hit by a fall in sales volumes of a quarter of more. These hard-hit sectors include two housing-related sectors, furniture/lighting and DIY (hardware, glass, paints), as well as book/newspaper shops and bars.
A number of sectors, however, have actually grown their sales in the last three years. They include department stores (just about), clothes, “non-specialised” stores and pharmacies. The key to their relative success? Not increasing prices, it seems. The vertical scale shows the change in the average price charged in each sector, as backed out from the value and volume series provided by the CSO. Whereas bars and newsagents around the country might be scratching their heads about their fall-off in business, both sectors are charging almost 5% more now than three years ago, on average. Meanwhile, the electrical goods sector – in theory much more exposed to collateral damage from the zombie property sector, as well looking like an obvious candidate for luxury cutbacks – has slashed prices by almost 30%. The result is that sales volumes are down only 2.5%. (Another factor to throw into the mix is that the sector is also likely to be used to falling prices, due to rapid technological advances.)
Two other quick notes:
- A sector not included in the stats is motor vehicles. Sales are down almost 50% from early 2007 levels (hence it would have changed the scale of the horizontal axis considerably), while prices are about 6% lower. (The silver lining for the sector is that car sales are up almost 20% on a year ago.)
- The pharmacy sector (which also includes sales of medical and cosmetic articles) has increased its sales volume by 3% in the last three years, cutting prices 8% along the way. Suggestions welcome on how much this outcome is driven by the Competition Authority’s deregulation of the industry, as opposed to, say, inelastic demand for necessities in life.