The Consumer Price Index and Apparel

The Consumer Price Index (CPI) is an indicator of price changes for goods and services.  Over the past 12 months, the overall increase was 2.1% for items such as energy, gasoline, and food.  Apparel, however, was one of the very few items which comprise the index that actually dropped in January, 2011.  Apparel’s .9% decrease reflected the CPI’s evaluation of the purchase of this category by urban households in four census regions across the country:  Northeast, Midwest, South and West.

The price of apparel, however, is not expected to continue its decline.  According to the National Cotton Council, the average price of cotton for 2010 was 105.4 cents per pound.  In January of this year, that average had climbed to 178.9 cents.  This is in sharp contrast to the prevailing prices from January of 2010 when cotton was just 77.4 cents per pound. 

To offset the higher cotton prices, apparel makers have sought inexpensive places to manufacture their goods.  The U. S. Office of Textiles and Apparel (OTEXA) reports that Southeast Asia has become a destination for manufacturers and retailers looking to reduce manufacturing costs.  However, these cost savings could quickly evaporate if the fuel costs to transport the raw materials and finished products continue to rise.

Wool prices are also up, but not as much as cotton, as the demand for wool fibers increases.  Also contributing to higher wool prices is the reduction in acreage farmers have allocated to sheep grazing in favor of higher profits to be realized from converting the land to growing corn and soybeans.

Other facts that will impact apparel prices in the near future are the global credit squeeze and higher financing costs for textile production, tight supplies of cotton due to flooding in the Far East and Australia which reduced supply, and the ever increasing demand from China for cotton and natural fiber textiles.

Increasing the supply of textile fibers will reduce the upward price spiral on raw materials used in the manufacture of wearing apparel, but, in the end, the consumer may have the last word.  Retailers who pass on the increased cost of apparel to thrifty-minded consumers may just find that consumers are already tapped out from higher food and energy costs and that apparel may very well stay on the rack.