September prices were up for the first time since 1992

September prices were up for the first time since 1992

Hit by soaring raw material costs and rising wages in Asia, UK clothing and footwear prices in September 2010 were up on an annual basis for the first time since 1992.

Although the increase was only 0.9% compared with the same month a year earlier, according to the global business information company Textiles Intelligence, it has come at a time of faltering economic growth, fears of a double dip recession and impending rises in unemployment as a result of cuts in UK government spending.

Moreover, the price increase between August and September alone was the biggest since records began, at 6.4%.

News of these increases has coincided with warnings from a number of UK retail chains, including Next and Primark. Another company to warn that higher prices may be in store is the Swedish chain H&M.

The main cause is a massive hike in the price of raw cotton. In the 18 months between March 2009 and the end of September 2010 this rose by 127%, from 51 cents/lb to almost 116 cents/lb.

Cotton is in short supply because farmers cut back on plantings when cotton prices were low. Also, cotton usage is rising in response to strong retail demand growth in China and India. And a further blow to cotton prices has been struck by the devastating floods in Pakistan.

Many textile mills have switched to polyester as a cheaper alternative. But the extra demand has encouraged polyester fibre producers to raise their prices too. In China the average price of polyester staple fibre grew by over 30% between January and mid-October.

On top of the increases in raw material costs, many mills in low cost countries are having to pay higher wages. In Bangladesh, worker unrest and trade union pressure have led to an 80% hike in the minimum monthly wage for the lowest grade worker over the last four years.

Rising wage costs, coupled with labour shortages, also continue to plague factories in China - especially in the coastal regions. The shortages have been made worse by the fact that migrant workers were laid off during the global economic crisis and moved away to rejoin their families. Although production is picking up again, many are reluctant to return to their former employers.

Only in the more remote provinces are labour costs low. But in an era of fast fashion it takes too long to move manufactured goods from these areas to China's eastern and southern seaports, let alone transport them by ship to Western markets.

Western retail buyers are also having to pay higher prices because of the appreciation of the Chinese currency, the renminbi (yuan).

According to Michael Lee Serwetz, the president of Prophet Business Services, the average monthly labour cost in Zhejiang grew by 140-220% in terms of US dollars between 2006 and 2010 when wage
inflation and the effects of currency appreciation are taken into account.

Many buyers are looking elsewhere in search of lower costs but no other country can match China's combination of volume, product variety, expertise and quality.

With cotton prices likely to remain high for some time, according to Textiles Intelligence forecasts, prices in the shops are unlikely to fall to the levels which European and US consumers have been enjoying for over a decade.

The report 'End of the Line for Cheap Clothing?' appears in Issue No 147 of Textile Outlook International.