Greeks Get Cheaper Ikea Shelves as Prices Drop in Recession
Ikea slashed the price of its Billy bookshelves in Greece by 22 percent, underlining the impact of the nation’s austerity drive and sovereign-debt crisis on the country’s purchasing power.
Greek outlets of the world’s biggest home-furnishings retailer now sell the signature bookshelf for 35 euros ($44.95), down from the 45 euros it was listed at a year ago. The average price of the item in 37 countries dropped 7.6 percent to $55.54, according to figures on the Netherlands-based company’s website.
The data suggest sluggish demand is containing prices across Europe. An index compiled by Bloomberg News showed the price of Billy shelves declined in all 13 euro-area countries served by Ikea relative to a global average. The 10-euro drop in Greece, where Prime Minister George Papandreou’s government has cut wages and raised taxes following a bailout, is the region’s biggest along with that of neighboring Cyprus.
“That Greek prices are falling makes sense given that wages are dropping,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “These are the kind of adjustments we need to see moving forward. They will help Greece over time to get a boost to exports to offset domestic weakness.”
Among the other euro-area countries that have been the focus of investor concern, the price of Billy shelves fell to 35 euros from 39 euros in Ireland. Prices were unchanged in Spain and rose by 29 cents to 35.29 euros in Portugal. Both countries have raised value-added tax to help cut budget deficits.
“For Greece and Ireland it’s a question of supply and demand,” said Francette Koechlin, a statistician at the Organization for Economic Cooperation and Development in Paris. “People aren’t buying so they cut their prices.”
Globally, the lowest prices were in France, Belgium and Spain, where the shelf unit cost $38.53, $44.88 and $44.95 respectively. The highest were in Israel, the Dominican Republic, Saudi Arabia and Australia, with prices of $85.77, $76.11, $73.33 and $71.58.
The Economist magazine’s Big Mac index, which also compares dollar prices in a gauge of international pricing power, showed in July that the most expensive place to buy the McDonald’s sandwich this year was in Sweden, at $6.56. Argentina was the cheapest, with Big Macs on sale at $1.78.
On the Ikea index, the biggest declines in relative prices from last year came in Romania, Greece and Cyprus, where the drops were 27.6 percent, 24.3 percent and 24.3 percent. The biggest increases were in Japan, Singapore and Iceland with gains of 22.2 percent, 15.3 percent and 15.1 percent.
In local currencies, prices were unchanged in the U.K. and the U.S. at 29.90 pounds ($46.52) and $59.99.
Koechlin of the OECD cautioned against reading too much into the price of one object as opposed to a basket of items and noted that currency fluctuations would have a mechanical effect on moving euro-area prices lower in relative terms. The euro has dropped 11 percent against the dollar in the past year.
Prices were collected Sept. 14 and converted to dollars at the average exchange rate over the past 30 days.