Issue #0828/1 – The sudden violent swings in exchange rates seen over the past eight weeks in particular is set to play havoc with prices of goods passing between countries. So far, we’ve only seen Lexmark react with price increases on its supplies products in the UK but there is every probability that Hewlett-Packard will follow suit in due course.
Lexmark has always been very reactive to influences such as exchange rates, whereas other manufacturers, especially Japanese manufacturers, tend to take a longer term view and adjust prices less frequently and only as a last resort.
Some years ago, Hewlett-Packard was as responsive as Lexmark in these circumstances but recognised that price changes every month were confusing to customers and annoying to the channel, which simply was not making the adjustments anyway, especially when those price adjustments were downwards.
After more than six years of fairly steady weakening against the Euro and the Pound, the US Dollar has suddenly begun to strengthen, gaining 12% against the Euro in just eight weeks, taking it back to a level that was passed exactly one year ago.
Exchange Rate Fluctuation
Taking time-scale into account, four weeks is not long enough for Hewlett-Packard to consider and implement a response. My suspicion would be that adjustments to Euro pricing may be implemented in November with the company watching very closely in case further adjustments are necessary.
Any adjustment before November would be an indication of just how serious the situation is perceived to be and the company may wish to wait and see if the trend will continue or whether it will reverse again as it did in 2005.
It is actually the UK that is more likely to be hit hard in a shorter timescale as weakening of the Pound against both the US Dollar and the Euro compounds the problem. In fact, the slide against the Euro started as long ago as July of 2007 – 14 months ago – with a loss of 18% to date. More recently, the sharp rallying of the US Dollar combined with continuing weakening of the Pound, sees the Pound now worth about the same as it was between mid-2005 and early 2006. And, going back a cycle in the Dollar’s initial decline, rates are now as they were late in 2003.
There is still some way to go before we see the Dollar being worth what was against the Pound in 2000 though!
Exchange Rate Fluctuation
For printer users in the UK, it is the exchange rate against the Euro that is more significant than the rate against the US Dollar because most UK pricing levels are set in relation the Euro rather than the US Dollar.
It wasn’t actually till February 2008 that Hewlett-Packard deemed it necessary to make a pricing adjustment, averaging 5.8%, by which time the Pound had lost 10% of its value – see article "UK printer owners suffer from continuing Sterling slide as Hewlett-Packard raises supplies prices" for more detail.
Following those increases, as the Pound continued its slide, Hewlett-Packard pushed supplies prices up again in March, by a further 5.8%, and then again in June, this time by 5.3% – making a total increase of 18% in the five-month period.
Rather inclined to reversing pricing decisions only a month or two after making adjustments, Lexmark bizarrely cut prices by just under 4% in November 2007, in the face of the falling Pound, only to increase them again by 6.4% in January 2008 (see article "Exchange rates prompt huge price increases on Lexmark supplies – with big implications to Total Cost of Printing") and then decrease them again by a fraction a couple of months later.
Now, this month, we have price increases again from Lexmark, averaging 5%. These affect 80% of laser supplies and 99% of inkjet supplies. Most of the increases are around the 5.5% mark with just a few at only 2.9%.
Overall, the result is that Lexmark supplies prices have risen by approximately 10% since July 2007, rather less than the increases from Hewlett-Packard!!
There are, however, a few products that experience price increases as high as 21% in the September review. These are exclusively supplies for the 24ppm colour laser engine used in the C770 and C772 colour printers and X772 colour MFP.
Following claims from US economists as early as April of this year that the US was entering recession, concerns over the world’s economies now indicate that Germany, Spain and the UK are leading the way within Europe into a period of recession – other parts of Europe currently being stagnant. The UK’s government says that it believes the UK to be better placed than other economies to cope than it had been in previous downturns.
Also said to be headed for recession is Japan. The Yen has certainly been volatile over the past 18 months or so, fluctuating rapidly by 10% every few months. Right now, levels of the Yen against the Euro are back down at the levels they were at towards the end of 2006.
Exchange Rate Fluctuation
These fluctuations in the Yen include a 10% drop in value over the last seven weeks, as we saw with the US Dollar against the Euro.
As we stand now, approaching the middle of September 2008, Lexmark is the only manufacturer to have raised supplies prices – nothing from any of the Japanese manufacturers and nothing from Dell, Hewlett-Packard or Xerox yet.
Epson’s UK supplies prices were the same in the summer of 2007, after a 20% shift in Yen to Euro currency rates, as they were at the beginning of 2006. There had been a small increase at that point – 4% in January 2006 – when there had been little change by way of currency trend between either Yen and Euro or Euro and GBP.
Prices at September 2008 are up by about 10% from the summer of 2007. The increase occurred in April 2008, about 10 months after the Yen/Euro exchange rate hit its peak in the summer of 2007. This increase is almost certain to be linked more with the changes in the Euro/GBP rate than the Yen/Euro rate.
We can see, therefore, that pricing changes in Euro zone and the UK are far fewer and further between from Japan than they are from the US.
In the near future, the expectation in Europe would be that there may well be pricing adjustments from Hewlett-Packard within the next couple of months and probably from Xerox as well. Dell is perhaps likely to maintain consistency with its prices, while Japanese companies are unlikely to make adjustments unless the exchange rates move much further than they have in the past seven weeks.
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