WASHINGTON — Inflation in apparel prices is hitting the boiling point.
A surprising 1.1 percent jump in retail apparel prices in August is serving as the harbinger of even higher inflation to come through the crucial holiday season as increases in cotton prices make their way through the pipeline. The August figure marks the third consecutive month retail apparel prices rose more than 1 percent on a year-over-year basis. Looking at the 12-month figure, the August number was even worse: prices climbed 4.2 percent in August versus August 2010, according to the U.S. Labor Department’s Consumer Price Index released Thursday.
Nor are things expected to get that much better soon. While cotton prices have dropped to about $1.06 a pound after spiking to more than $2 a pound in March, experts have predicted there could be another bump in cotton to $1.25 to $1.45 a pound due to the continuing wildfires and drought in Texas, which could impact current crop projections, as well as weakening consumer demand. Reports from Pakistan this week said heavy rains have caused substantial damage to cotton crops all over the country, leading to a shortage and a 15 percent hike in local cotton prices.
“Apparel inflation has been consistently high for the past four months due to previous increases in cotton prices, appreciation of China’s currency, and probably cost pressures in Asian apparel factories,” said Chris G. Christopher Jr., senior principal economist for IHS Global Insight.
The retail apparel price gain was the largest in the month of August since a 1.2 percent increase in retail apparel prices in 1998, according to Sarah Hutchinson, an economist at the Labor Department.
“Traditionally, the apparel index shows larger increases in September [than August] due to the introduction of fall-winter merchandise,” she said. “We were a little surprised by this high increase this month. This has been the fourth month in a row of higher-than-normal apparel price index increases that have been reported.”
Women’s retail apparel prices, which rose 1.9 percent in August compared with July, and girls’ apparel prices, which spiked 3 percent in August, were the main drivers behind the inflation in the apparel index, Hutchinson said. On an annual basis, women’s retail prices were up 4.2 percent and girls’ retail prices were 9 percent higher than August 2010.
Andrew Fitzpatrick, director of investments at Hinsdale Associates, said retailers are looking at markdowns and “slowly bumping up prices,” which he expects to continue into the holidays.
Fitzpatrick said he doesn’t see real inflation overall, noting that apparel price increases are coming from a low base and from a period of deflation for the past 20 years.
“I do see that these prices are picking up slowly but surely…so that even if they do keep increasing there probably won’t be as much of a backlash as might be expected,” he said.
Fitzpatrick does see prices “bouncing in the upward direction through the holidays,” but he believes retailers have some room to pass them onto consumers.
“With rising raw materials and transportation costs, they are pretty much forced to execute some price increases and I think that will be the right way to go for retailers,” Fitzpatrick said. “I don’t think there will be a lot of push back from consumers because the price increases are being done subtly at retail.”
The overall CPI rose 0.4 percent in August after jumping 0.5 percent in July and were 3.8 percent higher than a year earlier. The core index, which excludes the volatile food and energy sectors, increased 0.2 percent and was up 2 percent from a year earlier.
Christopher said higher prices are “increasingly becoming a problem for strained household budgets,” adding that, “Wage growth and job prospects have been lackluster in recent months and many Americans are feeling the pain of higher prices.”