Detergent makers like to claim that their own soap powder is the fastest-acting. But in China last week it was shoppers who were reacting the quickest, after reports in the media that companies including Unilever and Proctor & Gamble were planning to increase their prices by up to 15%. By the end of the week, supplies of soap, washing powder and shampoo were being run down, as customers flocked to clear the shelves.
Wang Jiayin, a 41 year-old office worker in Beijing, stocked up with six bottles of P&G Rejoice shampoo. “Shampoo is already way too expensive, and I can’t bear any further price increases,” she told the Wall Street Journal. She also elaborated on the psychologically-contagious nature of the buying: “I heard my neighbours in the elevator talking about the price increases. So I figured I should really take action now.”
The scene is a little reminiscent of the panic buying in the immediate aftermath of the Japanese nuclear crisis, when Chinese shoppers rushed out to buy iodised salt in the belief that it would protect them from radiation poisoning (in fact, you would need to consume 80 tablespoons for the equivalent amount of iodide from tablets designed to protect against radiation damage to the thyroid).
As with detergent, shoppers acted in unison to hoard salt supply.
Fears of radiation quickly subsided. So a better corollary is probably the run on vegetable oil in autumn 2007, in which shoppers were crushed to death in supermarket stampedes.
This time around the imagery is not quite as dramatic, although expectation of imminent price hikes can be hard to quash.
“When you wake up and see photos of old people rushing into supermarkets in a panic, that is a signal to the government that this is a serious problem,” Shaun Rein of China Market Research, told the Financial Times.
The worry is inflation.
After a series of administrative measures, like raising reserve ratio requirements at banks and pushing through subsidies in the food supply chain, the government now seems to be turning more to a less-preferred option: raising interest rates. Until this week they had been increased three times since last October. Then the Qing Ming holiday saw another 25 basis point hike. Market consensus was that the move suggests that March CPI data (to be released next week) could surprise on the upside, perhaps moving above 5%.
That would be well above government targets, and Qu Hongbin at HSBC hasn’t ruled out another 25bp increase in the weeks ahead. The key challenge, Qu says, is to anchor inflationary expectations. HSBC forecasts are for inflation to slow in the second half of the year.
In the meantime, the government is pressuring companies for a little interim help, in delaying price rises.
Unilever late last week confirmed that it had “received a request from the National Development and Reform Commission and has chosen to comply with it, and postpone price adjustments previously scheduled for April 1,” a company spokesman told the Financial Times. One wonders what the response would have been should the conglommerate have received a similar request in some of its other markets.
According to reports, Tingyi, the Taiwanese noodle maker and China’s largest packaged food firm by sales volume, has also received an official phone call, after reports that noodle prices would have to go up by up to 14% due to rising ingredients costs.
The increase seems to have gone on a hold. The NDRC also spoke out in general, urging companies not to “casually” raise prices on consumer goods.
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