Economists say that everything in the market connects to everything else, that a purchase on one end can have significant consequences on the other. No one thinks about any of that when they buy something, of course, and many people take the saying as an exaggeration of the global economic model. The purchases made today may not result in immediate economic fluctuations in real time. However, in very rare cases, the world gets to see the consequences their everyday decisions have in the greater scheme of things.
In 2007, furniture stores decided to reduce the prices of their products, specifically the leather sofas. That move began a chain reaction that puts the value of the pound lower than two dollars. The lower prices for big-ticket furniture made other investment locations such as New York less attractive. The falling prices also meant that the Bank of England was less likely to increase interest rates, which was good news for homebuyers. Coupled with the decreasing price of food and petrol, the furniture discounts helped send the country’s inflation to one point nine percent. Analysts had expected a change in the same direction. But, they didn’t expect the magnitude with which the change occurred. The surge came about because analysts undervalued how consumers prioritised furniture as part of their expenses. Food accounts for nine percent, petrol is four percent, and furniture makes up two percent. The same furniture influence can also be seen in the opposite direction. Earlier that same year, a spike in furniture prices kept inflation at a high. The Consumer Price Index rose to its highest level in ten years at three point one percent. This prompted the Bank’s governor to write an explanation letter to Gordon Brown, the chancellor at the time.
According to the British Retail Consortium, the situation is a game of extremes. Higher interest rates squeeze consumers down to their last pound. The situation makes them pass on necessary items lower on the priority list. Furniture is right in the middle of that. It is important enough to be a necessity, but ranks lower than food, petrol, and mortgage. Lack of sales thus prompts stores to offer massive discounts, which open a floodgate of consumers looking to take advantage. The substantial number of sales, isolated in one period delivers a positive punch to the economy that observers can immediately see. A single purchase can affect the economy of the entire country, and sofa statistics are a very clear example of that. SOURCES: http://www.simplystylishsofas.co.uk/brown-leather-sofas http://www.theguardian.com/business/2007/aug/15/money.interestrates http://www.brc.org.uk/brc_home.asp