Inflation Hits Fashion, and From Every Angle

Fashion isn’t really driving inflation in the U.S., but that doesn’t mean the still-fragile industry isn’t going to keep feeling the pinch of higher prices. 

The Labor Department’s August reading of prices across the economy found that apparel, footwear, jewelry and other related goods saw prices rise 5.1 percent from a year earlier. 

That’s a remarkable run-up in a generally deflationary industry, which accounts for 2.4 percent of consumer expenditures, according to the Consumer Price Index’s “relative importance” factor.  

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Still, that rise was a good deal slower than the 8.3 percent increase seen across the broader economy, where food prices account for 13.5 percent of spending and were up 11.4 percent.  Energy costs are 8.8 percent of spending and were up 23.8 percent in August. 

The increases — fed by Russia’s war against Ukraine and pandemic supply chain backups — are forcing tough choices on consumers and has the Federal Reserve raising interest rates to cool the economy off, even at the price of recession. 

Meanwhile, fashion and retail are hit on almost every side. 

It costs more to buy goods, ship inventory and borrow money, consumers are stressed and investors are growing more frantic, staying away from any kind of uncertainty. 

Wall Street was looking for signs of relief and instead got almost a promise of more interest-rate hikes, as the Fed is seen as all but certain to keep making it more expensive to borrow money to push prices back down.

The Dow Jones Industrial Average fell sharply on Tuesday, losing 3.9 percent, or 1,276.37 points, to close at 31,104.97.

Among the fashion decliners were Rent the Runway Inc., down 38.7 percent to $3.02 after laying out a restructuring that sees it laying off 24 percent of its corporate workforce; RealReal Inc., 14.1 percent to $2.26; Stitch Fix Inc., 13.3 percent to $4.90; G-III Apparel Group, 10.2 percent to $16.27; Warby Parker Inc., 9 percent to $14.31; Signet Jewelers, 8.5 percent to $58.14, and Farfetch, 7.7 percent to $10.67.

“Outside of falling gasoline prices, inflation appears to be just as hot as ever, which means that the Fed still has plenty of work to do,” said Stephen Stanley, chief economist at Amherst Pierpont Securities.

“We are in for a period of white knuckles on the steering wheel, and I wonder if, at some point, financial market participants may begin to question their faith in the Fed’s ability to quickly get inflation back under control,” Stanley said. 

And investors might not want to stick with fashion through white-knuckled ride. 

A new reading of the S&P Global Investment Manager Index found that U.S. investor sentiment is in the doldrums.

Chris Williamson, executive director at S&P Global Market Intelligence, said: “The vast majority of investors surveyed anticipate the coming year to be one of recession combined with elevated inflation, meaning the global economy and tightened monetary policy are set to act as ongoing major drags on market performance and corporate earnings.

“The good news is that any recession is generally expected to be mild, and inflation is widely believed to have peaked, but there is clearly much gloom persisting, notably for consumer discretionary and real estate,” he said.