Analysts expect the deflation in prices to persist this year, as imports continue to squeeze prices, consumer confidence remains unstable and the general recession exacerbates the uncertainty.
“You’ve got China coming into the World Trade Organization over the next couple of years, the lifting of apparel and textile quotas and a strong U.S. dollar,” said Carl Steidtman, chief economist at Deloitte Research. “All of those suggest falling prices for apparel.”
A Labor Department analyst said: “The first thing that happens whenever there are concerns about the economy is people stop buying clothes+and stores begin panic markdowns. If this had been a normal year, maybe the declines in December would have been much smaller, but the November markdowns didn’t have the effect retailers needed.”
Apparel retail prices fell 0.6 percent in December against November, which continued the year’s trend of declines. Deflationary pressures also continued in women’s apparel prices, which fell 0.2 percent in December and plunged 4 percent year-over-year.
“In six of the last eight years [1994, ’96, ’98, ’99, 2000 and 2001], prices have fallen for apparel,” said Steidtman. “That establishes a pattern of deflation.”
Retailers started discounting in summer and continued cutting prices through fall and the holidays, according to Charles W. McMillion, chief economist at MBG Information Services.
“My expectation is that lower prices helped move merchandise before Christmas at a cost,” McMillion said. “It will really hammer retailers’ profit margins in the first quarter.”
In the overall economy, prices for all retail goods declined 0.2 percent in December, but increased by 1.6 year-over-year.
In the women’s apparel categories tracked by Labor, retail prices for suits and separates fell 4.9 percent in December and plunged 5.8 percent year-over-year. Outerwear prices fell 1.5 percent in December and plummeted 7 percent against December 2000. Women’s dress prices bucked the trend and edged up by 1 percent in December and increased 3.4 percent year-over-year.
Meanwhile, prices for underwear, nightwear, sportswear and accessories fell 0.8 percent last month and dropped 3.1 percent for the year. Girls’ apparel prices remained unchanged last month, but declined 4.8 percent against the year-ago period.