Economy

Rising Sept inflation for clothes, footwear signals return of demand

Shishir Sinha/Meenakshi Verma Ambwani New Delhi | Updated on October 13, 2021

But raises fears of pushing overall inflation as prices may go up on costlier inputs, new GST rate structure

Increasing pace of mobility along with rising input prices have pushed retail inflation for cloth and footwear further in September. This is despite headline inflation down to a 5-month low in the said month.

Data show, rate of retail inflation for clothing went up to 7.03 per cent in September from 6.71 per cent in August. Similarly, rate of retail inflation for footwear surged to 7.40 per cent in September from 6.93 per cent in August. Clothing and footwear have weights of 6.32 and 1.04 in Consumer Price Index.

Experts are cautiously optimist on higher inflation numbers for cloth and footwear as on the one hand it signals demand picking up while on the other hand it could add in already high core inflation (headline inflation minus inflation for volatile items such as food & fuel). Meanwhile, manufacturers say they will raise the prices. Also, with new GST rate structure comes into effect from January 1, prices could go up further.

Aditi Nayar, Chief Economist with ICRA, said: “The solid month-on-month uptick (in rate of inflation) of 0.5 per cent for clothing and footwear in September is a hint of some revival in domestic demand.

Dharmakirti Joshi, Chief Economist, Crisil, feels it has much wider impact as he said: “Core inflation inched up to 5.9 per cent in September compared with 5.8 per cent in August and 5.4 per cent in September 2020. Its rise was driven by items like clothing and footwear, recreation and amusement, and personal care and effects, indicating producers passing through rising input costs amidst recovering demand.”

 

Key factors

Now two factors will determine future course on prices front. First one is demand along with pending transmission of higher raw material prices and second one is change in GST structure.

Harkirat Singh, MD, Aero Club, known for brand Woodland, said that in the past few months, the raw material costs have surged. There have been issues with challenges in China and especially freight costs have surged by 4-5 times. Even suppliers had not planned for a strong bounce back in demand and that has led to shortages too. But companies been very conscious and haven’t immediately increased prices as consumers have been grappling with the impact of the pandemic.

“While we kept prices of products which were already manufactured or in the pipeline unchanged, we are looking to increase prices of new collections and where we have to purchase raw materials on an average by about 5 per cent,” he said.

Further he mentioned that there has been strong pent-up demand after the second pandemic wave and consumer sentiment has been positive. “We hope to make up for the loss of sales during the 3-4 months of the second pandemic wave in the festival months and hope to hit the pre-pandemic sales mark. We expect to garner a growth of 10-15 per cent in this festival season compared to last festival season,” he added.

Inverted duty structure

As decided by GST Council last month, all footwear, irrespective of prices will attract GST at 12 per cent while barring cotton, all textile products including readymade garments will have GST at the rate of 12 per cent. This will be possible as Council has decided to do away with inverted duty structure. It could result in rise in prices of low-priced products. These new rates will come into effect from January 1.

Published on October 13, 2021

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