Bulletin – June 2012 Costs and Margins in the Retail Supply Chain Abstract

Retail goods are an important component of the consumption basket and changes in their prices have had a significant influence on CPI inflation over the past decade, particularly following movements in the exchange rate. To help understand the drivers of inflation for retail goods, this article sets out the major costs and margins involved in supplying retail goods to consumers. Notwithstanding dispersion across different types of goods, on average, around half of the final price of retail items can be attributed to the cost of the goods themselves, with the remaining half covering the gross margins of wholesale and retail firms in the distribution supply chain. The costs incurred by distributors are broadly split between labour and other input costs, with distributors' profit margins accounting for a little under 10 per cent of the final sale price. These shares have remained relatively stable for at least the past decade.

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