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What’s Going on With Inflation? Here’s What New Data Suggests

A better-than-expected inflation report has the market buzzing, with the Consumer Price Index (CPI) rising an unadjusted 7.7 percent from October 2021, easing from September’s 8.2 percent inflation mark and August’s 8.3 percent annual price uptick.

This marks the smallest 12-month CPI increase since January, and less than the estimate from Dow Jones, which expected a 7.9 percent annual price jump and 0.6 percent monthly increase.

On a month-over-month, seasonally adjusted basis, CPI increased 0.4 percent in October, the same increase as in September, according to the U.S. Bureau of Labor Statistics (BLS).

“Today’s report shows that we are making progress on bringing inflation down, without giving up all of the progress we have made on economic growth and job creation,” said President Joseph Biden in a statement. “My economic plan is showing results, and the American people can see that we are facing global economic challenges from a position of strength. It will take time to get inflation back to normal levels—and we could see setbacks along the way—but we will keep at it and help families with the cost of living.”

Government metrics have apparel coming in at an unadjusted 4.1 percent price hike over last October, but falling a seasonally adjusted 0.7 percent from September. Men’s and boys’ apparel increased 2.7 percent, while women’s and girls’ apparel drove up the total with a 6.3 percent boost. Seasonally adjusted, month-over-month totals indicate men’s and boys’ apparel dipped 0.6 percent in price from September to October, while women’s and girls’ increased at a small 0.2 percent rate.

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The apparel industry is hoping that the month-over-month slowdown is closer to the pre-pandemic norm and prices slide back to earth faster.

“The October CPI numbers demonstrate that apparel and footwear prices continue to rise and remain well above pre-Covid levels,” said Nate Herman, senior vice president, policy, American Apparel & Footwear Association (AAFA), in a statement provided to Sourcing Journal. “As consumers rush to purchase cold-weather clothes, coats, shoes—we continue to press the Biden Administration to relieve American consumers and businesses of punitive tariff pressures.

NPD expects outerwear sales to get big bump

As the weather gets colder, brands must be cognizant of not just how much, but how consumers are spending. The top growing category across all apparel, according to the BLS, include men’s suits, sport coats and outerwear at 7.2 percent, and women’s underwear, nightwear, swimwear and accessories at 8.3 percent. Women’s outerwear dipped 1.4 percent.

Even with the discrepancy between men and women, NPD Group is forecasting outerwear sales to grow 6 percent year over year in the fourth quarter.

Among U.S. adults, only half reported that they wear an actual winter coat during the colder months, while the other half said they prefer to wear multiple layers, according to the NPD Omnibus Survey.

“As the outerwear category struggled to return to 2019 sales levels, even during the apparel industry’s comeback last year, the category has finally reached the point of replacement in its sale cycle,” said Maria Rugolo, director, industry analyst, apparel, NPD Group, “My theory is that outerwear sales struggled throughout the pandemic because consumers were able to make do with the coats already in their closets. Fast forward to today, and wardrobe needs—stemming from replacement, replenishment, and a return to social gatherings—will once again prompt consumers to spend on outerwear, which will yield better sales results for the fourth quarter.”

Unit sales will increase by 2 percent, according to NPD Group’s Future of Apparel forecast. In fact, outerwear is a top-of-mind purchase for consumers this holiday season, with 30 percent of adults saying they need to update their outerwear for the upcoming winter season, rounding out the top three categories, along with jeans (36 percent), and socks (33 percent).

Market rallies as interest rate hikes expected to wane

From a macroeconomic perspective, the inflation news might yield a sigh of relief from budget-constrained consumers anticipating a steep interest rate hike by the Federal Reserve. In its efforts to curb inflation, the Fed has already raised interest rates six times in 2022, with the most recent four at 0.75 percentage points apiece. Designed to tighten borrowing, these increases took the benchmark federal funds rate from a 0 percent to 0.25 percent range in March to a range of 3.75 percent to 4 percent, the highest since the 2008 Great Recession. 

Rate futures contracts are now pricing in a top policy rate in the 4.75 percent to 5 percent range next March—lower than the 5 percent-plus range seen before the October report. Interest rate cuts are expected in the second half of 2023.

Wall Street reacted positively to the news. As of midday Thursday, the S&P 500 rose 4.7 percent, the Dow Jones was up 3.1 percent and the Nasdaq soared 6.3 percent amid the positive development.

Excluding volatile food and energy costs, core CPI increased 6.3 percent on an annual basis and 0.3 percent for the month, compared with respective estimates of 6.5 percent and 0.5 percent. The Fed views the core rate as a more accurate measure of future inflation trends.

The shelter index increased 6.9 percent over the last year, accounting for over 40 percent of the total increase in all items less food and energy. Other indexes with notable increases over the last year include medical care (5 percent), household furnishings and operations (8.4 percent), new vehicles (8.4 percent), and personal care (6.4 percent).

Adobe reveals what drove overall online price declines

Adobe Analytics, which models its Digital Price Index (DPI) after the CPI, said that price of goods sold online in October fell 0.7 percent year over year while rising 0.3 percent month over month. This marks the second consecutive month where online prices have fallen on a year-ago basis. In September, online prices dipped 0.2 percent year over year.

The October decline in prices was driven by categories including electronics, computers, toys and sporting goods. Adobe says that electronics is the largest category in e-commerce by share of spend, but online prices fell sharply as early holiday discounts kicked in, decreasing 12.9 percent year over year and 2.4 percent month over month. This is the largest recorded year-ago decline for the category since Adobe began tracking online prices in 2014.

Pre-holiday deals also drove down prices for toys, which fell 7.1 percent from 2021 and 3.5 percent from September 2022. Prices for sporting goods declined 4 percent year over year, a low for the category this year. October marks the sixth consecutive month where prices have fallen on a year-over-year basis, but sporting goods rose 0.3 percent month over month.

Powered by Adobe Analytics, the DPI analyzes 1 trillion visits to retail sites and more than 100 million SKUs across 18 product categories: electronics, apparel, appliances, books, toys, computers, groceries, furniture/bedding, tools/home improvement, home/garden, pet products, jewelry, medical equipment/supplies, sporting goods, personal care products, flowers/related gifts, non-prescription drugs and office supplies.