The Shirt on Your Back is About to Cost an Arm and a Leg
Food and gas prices are skyrocketing out of control, now your clothes are about to take a hit. Time to start shopping at the local Goodwill store or some reasonable facsimile thereof:
Cost Pressures To Hit Wal-Mart, Target, Other Firms’ Profits
By Ed Carson – IBD
Thu., Feb. 17, 2011
Soaring cotton futures take a long time to filter down to retailers and consumers, but it’s finally happening.
Citi predicts product cost inflation of 4%-6% in apparel and 2%-4% in home goods in the first half of the year, “with inflationary pressures accelerating in 2H11 to 13%-15% in apparel and 9%-11% in home.”
Cotton futures have risen more than 150% over the past year to 150-year highs. Meanwhile, rising wages and factory constraints in China are further pushing up costs. Retailers tend to source goods months in advance, so they’ve been insulated from raw material price spikes to a great extent. But no longer.
Apparel prices jumped 1% in January, the biggest monthly gain in nearly two years.
Most retailers — and other U.S. companies outside of food and energy — are going to struggle passing on the bulk of their cost hikes to their customers, who are struggling amid still-high unemployment and sluggish wage gains.
As Strategas’ Nicolas Bohnsack noted today that “Over the next several quarters, a key dynamic will be the ability of companies to pass input cost increases on to consumers. This is likely to prove more difficult in an environment in which wage growth is restrained.”
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