After months of flash sales and deep discounts, apparel prices spike the most in 3 decades

Key Points
  • CPI data show apparel prices climbed 1.7 percent in January.
  • This marks the biggest increase since 1990.
  • Many retailers are coming off a strong holiday season, with leaner inventory levels.
Inflation's impact on retail
Inflation's impact on retail

The Consumer Price Index on Wednesday revealed that apparel prices climbed 1.7 percent in January, accounting for about 3 percent of the overall CPI and marking the biggest increase since 1990.

The monthly report by the Labor Department also showed that women's apparel costs jumped a record 3.4 percent during the month.

The news comes after many retailers celebrated a stronger holiday season, leaving them with leaner inventory levels and less of a need to hold flash sales and offer deep discounts at the start of 2018. Apparel prices have been in a deflationary cycle for many years, as companies have been pressured to ramp up promotions to move merchandise off the floor. But that appears to be changing.

So far this year, retailers "didn't have to go through fire sale prices to get rid of this stuff, so they've been able to maintain more of a price integrity stance," Craig Johnson, president and founder of Customer Growth Partners, told CNBC.

Secondly, there has been "a rebound in some of the up-market [or more expensive] apparel retailers," Johnson said. "When you get stronger performance from up-market retailers, you get higher price points that are selling ... and that moves up the nominal price point for apparel."

Names like Canada Goose and Moncler for winter coats have been flying off the shelves thanks to a handful of snow storms. Other luxury retailers including Coach parent Tapestry and Michael Kors, which also offer apparel, have reported stronger earnings of late and are optimistic about fiscal 2018. Anthropologie and Free People, which are owned by Urban Outfitters, are also boding well.

While high-end apparel retailers are starting the year on a high note, Johnson also anticipates the off-price sector (i.e., TJX, Ross Stores and Burlington) will continue to ride out its successful trajectory.

Brands might not be discounting their merchandise as much initially, he said, but there is still a glut of apparel inventory that won't be sold and will eventually end up in the hands of off-price companies for marking down.