Chinese suppliers are asking some of the biggest clothing chains for price increases of more than 10 per cent in a fresh sign of the growing inflationary risks facing the economy.

Debenhams and French Connection said yesterday that there was a real risk that clothing prices could rise in the coming year after a decade of deflation, given higher wage costs in China and a sharp increase in the cost of cotton.

Chinese inflation is running at a ten-year high of 8.7 per cent. Cotton is about 40 per cent of the cost of a plain T-shirt. Prices for the commodity have surged 17 per cent in the past month and are expected to climb dramatically in the next two years, given rising demand and lower supplies as growers switch to wheat.

Rob Templeman, chief executive of Debenhams, said: “We will start to see inflation coming through in clothing. I’m not sure when it will arrive, but it is being driven by rising wage costs in China, energy costs and the cotton market.

“The saving grace at the moment is that the American retailers aren’t in the market and there is an element of oversupply. But when the Americans come back, you will start to see inflationary pressure here.”

Stephen Marks, chairman and chief executive of French Connection, said: “Suppliers are definitely asking for increases and it’s more difficult to get the right price. Fierce competition and the growing use of suppliers in the Far East have seen clothing prices tumble in the past decade.”

Figures from the British Retail Consortium show clothing deflation at 8 per cent in 2001. It was 4 per cent last year. However, clothing prices have begun to rise in the US, with women’s clothing up 0.6 per cent in January. Brooke Bone, a Morgan Stanley analyst, said in a note: “What until now have been very low-cost producers are rapidly becoming less so.”

Higher clothing prices would boost retailers if they were able to pass them on to consumers, but they would pose yet another problem for the Bank of England, given the pressure for a cut in interest rates.

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