By  on August 18, 2011

Showing signs of an inflationary trend, retail apparel prices increased a seasonably adjusted 1.2 percent in July compared with June and were up 1.8 percent from a year earlier, the U.S. Labor Department reported Thursday in its Consumer Price Index.

It marked the second-straight month that retail apparel prices were up more than 1 percent in yearly comparisons, and the first time in the last two years. Sarah Hutchinson, a commodities analyst at the Labor Department, said it is the highest seasonally adjusted July increase in overall apparel prices ever recorded for July.

“Usually July price changes are negative due to clearance sales, but this month apparel prices were generally high across the board,” Hutchinson said.

Analysts have blamed rising costs, notably in cotton and other raw materials, for the upward movement of prices.

“Apparel inflation has been consistently high for three months in a row, due to previous increases in cotton prices and the continued appreciation of China’s currency,” said Chris Christopher, U.S. economist for IHS Global Insight.

The overall CPI rose 0.5 percent for the month and 3.6 percent for the year. The core index, which excludes the volatile food and energy sectors, increased 0.2 percent month-to-month and 1.8 percent from June 2010.

Christopher noted that the increase in all good and services was the largest since March.

“The increase in prices was driven by higher gasoline and food prices,” he said. “Higher food prices are increasingly becoming a problem for household budgets since they are swallowing a larger share of income. However, some relief is on the way, since world oil prices have taken a major hit since the end of July.”

Prices for light sweet crude oil closed at $87.58 a barrel on Wednesday compared to its most recent spike at nearly $100 a barrel last month.

Christopher also noted that the core CPI increase was the largest percentage increase since July 2008. But he said, “It is apparent that pipeline cost pressures are staring to ease, and we expect very soft consumer demand and weaker cost pressures to keep core inflation down over the remainder of the year. The Fed will be watching core inflation very closely. If it continues to ease, it will give the Fed more ammunition to implement more stimulus.”

Cotton prices have dropped to about $1.03 a pound after rising to more than $2 a pound in March. Some experts have predicted a bounce back to $1.25 to $1.45 a pound, depending on whether current crop projections prove true and if consumer demand weakens.

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