Clothing covers up inflation

Inflation numbers released Wednesday showed that while the cost of everything else went up last month, clothes got cheaper.

Americans have been paying less and less for T-shirts and pants and socks over the last decade, because labor and raw materials have been so cheap in the countries where most of the things we wear are made.

But March’s 1.3% decline in apparel prices in the government’s main inflation indicator, the consumer price index, could well be one of the last.

“I think the party is over. We should expect to pay higher prices for clothes,” said Sung Won Sohn, professor of economics at the Smith School of Business at Cal State Channel Islands in Camarillo.

Manufacturing countries, China in particular, are getting hit with inflation too, and ever-higher fuel prices have been sending transportation expenses climbing. The value of the U.S. dollar, meanwhile, has been in the tank.

Wholesalers and retailers began feeling the apparel pinch last year, but with American consumers skittish, they didn’t dare pass on the higher prices. But they won’t be able to hold off for long.

“We are seeing prices increase at the wholesale level that are going to be affecting retail prices in the next season,” said Ed Habre, chairman of the National Shoe Retailers Assn. “The dollar is being brutalized on world markets and we’re feeling the effect of that.”

The Labor Department reported that the CPI rose 0.3% in March after holding steady in February, bringing the rate of inflation to 4% over the previous 12 months -- significantly higher than the 2% or 3% annual rates of a few years ago.

The fastest-rising segment of the index was petroleum and energy, up 1.9% last month and 17% over the last year. Prices for apparel dropped 1.3% in March and 4.7% since Jan. 1.

The pace of the overall increase in March was moderate because many different businesses -- not just clothing retailers -- were holding off passing along their higher costs in hopes of protecting market share.

“Businesses are having to eat much of the increase in energy and agriculture costs,” said Mark Zandi, chief economist at Moody’s Economy.com. “The consumer is pulling back and if retailers raise prices, they will be nailed with lower sales.”

While energy costs continue to take an ever bigger bite out of household budgets, economists said that they so far do not appear to have sparked more widespread inflation in the rest of the economy. The so-called core rate of consumer inflation -- which excludes fuel and food costs and is used by policymakers worried about spiraling inflation -- rose an even more moderate 0.2% in March, in line with forecasts.

“While the Fed remains concerned about inflation developments, the recent trend gives it somewhat more flexibility to ease policy as necessary to support the weak economy amid continued difficult credit conditions,” said Peter Kretzmer, senior economist with Bank of America.

The stock market cheered the CPI news since it made it more likely that the Fed would go ahead with another interest rate cut later this month. The Dow Jones industrial average soared 256.80 points to 12,619.27, a one-day rise of more than 2%.

If wholesale prices continue their relentless drive upward, though, it won’t be long before the effects hit the economy more broadly, said Ken Goldstein, an economist with the Conference Board.

“The $113-a-barrel oil is still on a tanker. It hasn’t hit the corner gas station yet. And when it does . . . it’s going to cost more to fill the gas tank and run the air conditioner,” he said. “This suggests inflationary pressure is not going to slow down even in a slow economic environment.”

Recovery is a long way off, Goldstein said, because higher prices and slower demand will continue to cut into corporate profits, stock prices will fall and poor earnings are likely to lead to job losses. “It may not get much worse but it’s going to be a long time before it gets better.”

Indeed, the Federal Reserve warned Wednesday that economic conditions continued to worsen nationwide.

In the West, “price inflation was modest overall, but upward pressures remained strong for food and energy products,” the Fed said in a report.

In Southern California, the report said, real estate demand remained “exceptionally weak.”

Across the country, it said, economic activity is slowing and consumer spending, which accounts for 75% of the economy, is softening.

That was evident Wednesday at the Bella Terra shopping center in Huntington Beach.

“People just aren’t shopping,” said Teresa Giron, manager of Ladonna, a clothing store.

“I think people are worried about their income and jobs and they’re putting money aside and not spending it.”

In fact, Giron doesn’t buy much herself anymore: “I used to be a big shopper.”

Soheir Gerges of Garden Grove said she had been cutting back too.

“We save our money,” said Gerges, a teaching assistant. “I’m worried about the economy. I’m worried about my mortgage. I’m worried I’m going to lose my house. I’m worried I’m going to lose my job.

“You don’t have a job, you lose your house,” she said. “It goes together.”

Harriet Miller, a stay-at-home mom from Huntington Beach who will start at job Monday in wood flooring sales, said clothing was definitely optional in her budget.

She has a clothes strategy that any retailer would hate: “Just buy things you really need and wear the heck out of them.”

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maura.reynolds@latimes.com

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leslie earnest@latimes.com

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Reynolds reported from Washington, Earnest from Huntington Beach.