Volatility set to stay
So while there might be a little easing on fabric costs, all these other issues may mitigate some of the declines. "We don't know yet is if that enough to offset the other increases we're going to see."

Depending on the type of product, fabric can account for anywhere from 30-60% of the cost of a garment - sitting at the higher end of this range for T-shirt and underwear manufacturer Hanesbrands Inc where nearly two-thirds of its products are cotton-based.

"We're probably going to have to deal with a highly volatile situation for a long time to come," said chairman and CEO Richard Noll on a conference call with analysts last month to discuss the company's second-quarter results. "Where it's all going to settle out for 2012 is anybody's guess."

The company has already raised its prices twice to offset raw material inflation, and says cotton bought at between $1.70 and $2 a pound is now working its way through the supply chain, hitting retail stores in the fourth quarter and into 2012.

And it is also in discussions with retailers "about how to make sure that lower cotton prices don't adversely affect them from a negative comp perspective," Noll explains, adding: "We're developing programs to make sure we handle this volatility in a successful manner for both of us."

Wherever cotton prices eventually settle - if they do at all - they're still likely to be higher than the $0.60 per pound average seen during the last decade before this recent run-up.

But there's also a risk that lower cotton prices will lead farmers to switch to more lucrative crops like corn and biofuels, setting a cycle in motion where output is unable to meet demand and pushes prices up again.

"Cotton needs to be at least above $1.25 or so for it to maintain acreage relative to other crops," Noll points out, "so we might be seeing a little bit of a dip down that may actually not last.

"But in this world we've got to be prepared for anything and so we're clearly open to the possibility cotton could stay this low for the foreseeable future."

Impact of higher ticket prices
Another dilemma faced by clothing companies weighing up their pricing strategies for the year ahead is that the impact of higher ticket prices on sales is not yet clear.

"So far it's been a mixed bag," Rangarajan explains. "We started seeing higher cotton prices last autumn, so those higher prices are only starting to hit the stores about now and through the second half of this year.

"But I don't think we'll really know until we get deep into back-to-school and into holiday, when a lot of these ticket prices are going to be in the stores."