Several BVWire readers have commented that the 20+ year decline in textile prices has stopped, and in fact reversed. More than one retail CEO is predicting 5-10% increases in their cost of goods this year as global wage pressures in key producing countries like VietNam and Bangladesh, along with inflation in the BRIC and other countries, suggest that the imbalance in international manufacturing costs is beginning to diminish.
“The cost of an onion in India has gone up 100% in the last year,” Pippa Malmgren (Canonbury Group), an expert speaking at the CFA Institute in Edinburgh said earlier this week. “Sugar and cocao have gone up, so you see acquisition activity like Kraft and Cadbury,” she pointed out.
“Manufacturing is starting to move back to the west,” says Pippa Malmgren of. Speaking to the CFA group from the beautiful Usher Hall in Edinburgh, Scotland, she commented that you’re seeing events like the Chinese taking a position in Volvo. Or you’re seeing international investment in farmland in Australia. “International markets respond amazingly quickly to change in price pressures, and the change has started. Huge amounts of capital are starting to flow in the opposite direction.”
Malmgren’s thoughts on how to make sense of this: “don’t be fooled by top line growth. Sure, China is growing at 10%, but don’t forget inflation and the fact that their costs are going up faster.”
“And, don’t forget what happens to governments that can’t feed their people. This is not an issue that’s isolated to northern Africa,” she says.