Two months ago, this space had argued that rising cost of raw materials such as cotton and energy could soon translate into higher prices for made-up textiles (For more, read “Get ready for lattha-flation”, published on June 13, 2022). Although lattha (fabric) prices still appear stable, readymade garments prices have shot up 27.4 percent in just one month! Local textile prices as tracked by PBS’ Wholesale Price Index (WPI) reveal highest month-on-month increase in garments prices in at least 12 years (and possibly more). Is inflation in locally manufactured textile prices finally here?
That should be the case, but the highest-ever monthly increase also raises eyebrows on PBS’s data collection methodology. The rise in readymade garments as tracked by WPI seems to have appeared out of nowhere. First, other line items under the Textile & Apparel basket such as yarns (cotton, blended, nylon); fabrics (woven, cotton, other); towels; blankets; bedsheets; and quilts etc show no month-on-month change in prices.
And while raw material prices such as cotton and yarn have witnessed upward pressure since at least June 2021, the pressure on raw material prices did not seem to pass on to other semi-finished and finished goods within the wholesale textile basket – at least not with the same vigor. Bedsheets prices – for example – are still stagnant at same level as January 2022. More, the raw material for readymade garments is not cotton or yarn but fabrics. Can readymade garments prices shoot up by almost one-third in the wholesale market without a commensurate rise in fabrics prices during the same period (or recently)?
Moreover, the double-digit increase in readymade garments has come at a time when the severe pressure in the cotton market is finally relenting. Local wholesale cotton prices – as tracked by PBS – are computed using the Pak Rupee equivalent price in international market (as announced daily by Karachi Cotton Association). Yet, despite significant depreciation in exchange rate during July 2022, cotton prices as tracked by PBS saw a massive dip of 23 percent during last month, attributable to the collapse of cotton prices in the world market.
According to World Bank’s commodity markets report, monthly average Cotton ‘A’ index dropped over 15 percent between June and July 2022. World cotton prices have in fact receded some 20 percent since peak levels touched during May, continuing their downward trajectory in August to date. Should readymade garments prices be rising when raw material prices are finally showing signs of reversal?
But even more importantly, the quantum jump in WPI’s readymade garments tracker during July 2022 is also not accompanied with a sizable change in readymade garments prices in neither Urban or Rural CPI. In fact, readymade garments prices under Urban CPI saw no change at all during July 2022. Could WPI prices shoot up without translating in any meaningful change in retail prices? Or could rise in retail-level prices have preceded rise in garments prices in the wholesale market? Considering the nature and dynamics of the local garments market, both possibilities appear unlikely.
That raises the possibility that PBS does not update index values of commodities under Textile & Apparel category every month; but instead, reviews it periodically. Reporting of constant prices for many months – consider price of nylon yarn, which has gone unchanged for over 12 months – seems to indicate this as likely explanation. However, a review of monthly prices going back twelve years (including under old base) shows that the revision in readymade garments prices under WPI does not occur in the same month each year, nor at regular intervals. Thus, there seems to be no apparent method to this madness.
Even so, a one-third increase in local garment prices over the last 20 months is not quite shocking in the slightest, considering the trajectory raw material and energy prices have followed since early 2021. What’s shocking, however, is PBS’ methodology, which (at least at present) could end up underreporting inflation in textile prices. Assuming prices of other textile items should follow a trend not too dissimilar from garments). By design? Probably not.