It appears that on comparison in clothing retailers the prices seem to have risen by around 50% on last year. This seems to ring true as retailers such as retailers Next, Primark and New Look have all warned of having to raise their prices (indeed this looks like it’s already happening).
But why? It’s partly because cotton prices have climbed by around 150% in the last two years, while transport costs are also rising. However, you can’t pin it all on these. Raw material prices have seen big moves in both directions in the past, yet the cost of clothes for UK consumers has been dropping steadily for ages. Indeed, the UK clothing consumer price sub-index has almost halved over the last decade.
No, the swing factor is what’s happening with wages in the countries that make the clothes sold by Britain’s retailers primarily China.
Those earlier rises in raw material and transport costs may in the past have been offset by lower labour costs. But the Chinese wage growth is now pushing these offsets.
This shouldn’t come as a great surprise. In the last seven years, China’s M2 money supply measure – how much cash is sloshing around the system – has increased more than threefold. In other words, there’s been a massive credit bubble. That has driven rapid economic growth – China is growing at around 10% a year just now.
As always we recommend clients budget their finances on a long term basis allowing for all types of expenditure to ensure they are making best use of their money.