The Background to the Slowing of Deflation in the Apparel Market
-From "Price Slashing" to "Price Polarization"-

Overview

This article examines one aspect of the recent slowing of deflation and its background, through an analysis of change in prices in the apparel market, which have been a "symbol" of deflation.

The slashing of apparel prices has been made possible Companies have been able to slash apparel prices because of the major cost reductions they have achieved by expanding production in China and other Asian countries. These efforts to cut prices on the part of the corporate sector have stimulated a preference for lower prices in the household sector and have led to the singular phenomenon whereby the preference for lower prices continued to grow even during the economic recovery of 1999 and 2000.

Since 2002, following a substantial fall in prices and a softening of the household sector preference for lower prices, the price-slashing trend has been halted by companies looking for ways to move out of the low-price strategy. However, some companies have continued their low-price strategy, so that the there is now a "polarization" of prices, with high value-added products found alongside low-priced products.

The conclusions of the analysis described in this article (namely (i) that the "polarization" of prices is likely to continue and (ii) that corporate strategy has a strong bearing on the household sector's preference for lower prices and that "polarization " is the result of the sustained low-price strategy adopted by the corporate sector) suggest that, although, at least as far as can be told from the apparel market, deflation is starting to slow, expectations of inflation are not as high as they have been in the past. If this is true of other goods, then as the household sector remains highly price-conscious, companies should avoid the naive assumption that the market will accept a rise in prices and should make it clear whether they are adopting a high value-added strategy or a low-price strategy in respect of each and every product.

more information on the content of this report, please contact
Kazushi Nakamura / Hisashi Yamada
Economics Department

Tel: Tel: 03-3288-4736 / 03-3288-4245
E-mail：nakamura.kazushi@jri.co.jp / yamada.hisashi@jri.co.jp