Cotton Market Clouded by US Inflation and Interest Rate Uncertainty

Uncertainty surrounding US inflation and interest rates is clouding the outlook for the cotton market, despite resilient consumer demand for garments. According to Cotton Incorporated's September Executive Cotton Update, inflation remains above the Federal Reserve's 2% target, while recent bond-market movements have heightened uncertainty over monetary policy ahead of the Fed's September 16 meeting.

The latest data from Cotton Incorporated shows that inflation-adjusted US spending on garments increased 2.8% year-on-year in July, although monthly spending declined 0.1%. The annual growth rate was below the recent 12-month average of 5.2% but remained above the long-term average of about 2%.

Cotton-dominant apparel imports weakened in July, with import volumes falling 11.4% year-on-year, following increases of 3.6% in May and 0.2% in June. Over the 12 months through July, shipments declined 7.9% year-on-year, suggesting greater sourcing caution amid elevated costs and continued uncertainty.

The average import cost of cotton-dominant apparel was unchanged from June at $3.71 per square metre equivalent (SME), on a seasonally adjusted basis. Import costs were about 12% above pre-pandemic levels and excluded tariffs.