By  on August 17, 2005

WASHINGTON — Running counter to the overall consumer price trend, the cost of apparel fell in July as policies that eased restrictions on global trade reverberated on the sales floor.

Retail prices for women's apparel dropped a seasonally adjusted 1.4 percent last month, leaving price tags 2.7 percent lower than a year ago, according the Labor Department's Consumer Price Index released Tuesday.

The decline came as prices paid by consumers for all goods increased 0.5 percent, the most in three months, because of rising gasoline prices. Excluding food and energy prices, the core inflation rate was up 0.1 percent in July, the same percentage increase as in June.

Economists said the cheaper apparel costs were recorded because of increased imports since World Trade Organization nations dropped quotas that restricted production, particularly from China. For the first half of the year, apparel and textile imports rose 11.3 percent to $32.4 billion, with China's stake shooting up 97.2 percent to $7.4 billion.

"Apparel prices are going south, but the jobs are going East," said David Wyss, Standard & Poor's chief economist, who added that a strengthening dollar also contributed to lower prices.

The Bush administration in May imposed safeguard quotas on $1.31 billion in Chinese imports and is considering broader import agreement during negotiations in San Francisco that end today. Wyss said safeguards would have a limited overall impact because goods also can be produced and brought into the U.S. quota-free from countries such as India.

With consumers paying less, it is uncertain how much profit will be left for vendors.

"These prices may drift down for another couple of years as we work our way from under the distortions caused by the quota situation," said J.P. Morgan Chase economist James Glassman. "The end of quotas really removed the straitjacket from this industry."

Retailers, which have to contend with costs that can't be deferred through trade, such as marketing and advertising, might ultimately find their margins slimming as shoppers get better deals.

"If their base prices are going down and their markup in dollar terms is not going up, then it's getting tougher and tougher to cover their fixed costs," Glassman said.Shoppers might be persuaded to spend more on their wardrobes, even amid higher fuel prices, he said.

"Energy prices are up a lot, but the fact that it's not leaking into a lot of other things tells you the inflation backdrop is pretty benign," Glassman said.

Overall apparel prices — women's, men's and children's — slid 0.9 percent for July and were down 1.8 percent compared with a year ago. Prior to seasonal adjustments, apparel prices retreated 3.8 percent last month as retailers slashed prices to move inventory of spring and summer fashions.

Within the women's category, outerwear prices fell 4.1 percent in July and were down 7.7 percent from a year earlier, while suits and separates dipped 0.8 percent for the month and 4.2 percent from a year ago. Dress prices dropped 3.6 percent in July, but managed to rise 1.9 percent against a year earlier.

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