The price of cotton in your shirt

Yesterday the near month futures price of cotton closed at $1.83/lb.  That's pretty high, more than double the price of just a year ago.  Before this year, I'm not sure cotton prices ever exceeded $1.20.  But that's in nominal dollars. Adjusted for inflation cotton prices were a good clip higher back in the early 80s.

How much do these high prices matter for the prices we pay for clothes?

Not so much.  Consider that there is about 0.6 lbs. of cotton in a typical man's shirt.  So that $1/lb increase in cotton prices over the past year means it costs an extra 60 cents to make the Brooks Brothers shirt for which I paid $40.  On sale.

Would it be so hard for the news media to put this kind of perspective on things?

Aw shucks, Hoss... It's so much more fun stoking inflation fear and general hysteria.

Take the New York Times, for example, one of our last and best shining stars of high-quality media.
Stephanie Clifford, Mokoto Rich and William Neuman:

A package of Oscar Mayer cold cuts. A pair of Nine West boots. A Whirlpool washing machine.

By the fall, people will most likely be paying more for each of them, as rising prices hit most consumer goods, say retailers, food companies and manufacturers of consumer products.

Cotton prices are near their highest level in more than a decade, after adjusting for inflation, and leather and polyester costs are jumping as well. Copper recently hit its highest level in about 40 years, and iron ore, used for steel, is fetching extremely high prices. Prices for corn, sugar, wheat, beef, pork and coffee are soaring. Labor overseas is becoming more expensive, meanwhile, and so are the utility bills to keep a factory running.

“There are cost pressures from virtually everywhere,” said Wesley R. Card, the chief executive of the Jones Group, whose brands include Nine West and Anne Klein. After trying to keep retail prices flat or even lower during the recession, Jones says prices for its brands will climb 15 to 20 percent by autumn.

When commodity prices started to rise last summer, many manufacturers and retailers absorbed the costs, worried that shoppers would not pay higher prices during the competitive holiday season or while the economy was still fragile.

Many big companies, including Kraft, Polo Ralph Lauren and Hanes, say they cannot hold off any longer and must raise prices to protect some profits..... 

I don't think so.  Especially not for name brands like these.  They have a lot of market power and the profit maximizing thing for them to do is to absorb much of this (quite modest) cost increase.  The price of my Brooks Brothers shirt will probably go up less than 60 cent cost increase from higher cotton prices.

Their nod to reality-based journalism comes at the bottom of page one.

The cost of raw materials accounts for a small portion of the cost of most consumer goods, as labor, processing and packaging tend to make up a larger share of the price at the cash register. Foods like coffee, meat and milk, which are closer to raw materials, will probably show some of the biggest price jumps.

But no facts to put this in perspective.  Too little, too late.

There is, in fact, another and far more plausible reason why firms will raise prices this year: increasing demand.  Especially for brand-name companies like the ones mentioned in this article, prices will be more sensitive to demand than they are to cost.  They've probably been holding down prices due to the recession.  Now that we're recovering (albeit slowly), demand is somewhat higher and they can raise prices a bit.

Update: A lot more on commodity prices here.