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Heightened Inflation a Concern in China

Data Analysis 10:10:30AM Mar 28, 2011 Source:SMM

Mar. 28 -- Spreading reports of price hikes for everyday products such as instant noodles, soap and shampoo have sprung up in newspapers across China, exacerbating concerns regarding ongoing inflation in the world's second largest economy.

In reports released earlier this month, unidentified sources said that four leading daily consumer product manufacturers -- Unilever, Liby, Procter & Gamble and Nice Group -- will raise prices by 5 to 15 percent starting next month. The four companies command four-fifths of China's consumer product market share.

Zeng Xiwen, vice president of Unilever Greater China, confirmed with Xinhua that several companies will raise prices, but declined to name them.

Tingyi, one of the largest food and beverage producers in China, also announced plans to raise prices for its instant noodles next month by 0.5 yuan ($0.08), the third such price hike since November.

All of the companies justified their price increases by citing higher costs of raw materials, such as flour and petroleum.

Rush buying of personal care products was reported in several Chinese cities after the increases were reported. Soap, shampoo and body lotion were sold out in several supermarkets in the city of Nanjing in east China's Jiangsu province, as well as the city of Shanghai.

Analysts said the spreading news of price increases could exacerbate inflation concerns in China and lead to a buying spree, especially among older consumers who suffered double-digit inflation in the late 1980s.

China's inflation has remained stubbornly high despite a series of measures introduced to dampen price increases.

The consumer price index (CPI), a major gauge of inflation, rose 4.9 percent in February, with inflation pressures spreading from the food sector to other industries.

Driven by rising raw material and energy costs, the producer price index, a major measure of inflation at the wholesale level, rose 7.2 percent in February. That was the highest the index had been since October 2008.

"This suggests deteriorating profit margins for manufacturers and the passing on of higher costs to consumers, which will add to inflationary pressures down the line," Li Wei, a Shanghai-based economist with Standard Chartered Bank said in an email to Xinhua.

Li expects China's CPI to rise by 6 percent between now and mid-2011.

"Rising global commodity prices and raw material costs, sustained price growth in the food sector and broad structural changes in China, such as faster wage growth and the need to raise prices of certain resources, mean that inflation is more stubborn and more difficult to fight this time," he said.

On Wednesday, crude oil prices reached their highest level since September26, 2008, with prices for May settling at $105.75 a barrel on the New York Mercantile Exchange.

Gao Shanwen, an economist with Essence Securities, said higher oil prices in coming months would further weigh on China's economy.

The Chinese government has prioritized price stability in this year's government work report and aims to keep consumer price increases at around 4 percent this year.

Speaking about this year's outlook, the People's Bank of China, China's central bank, said developed countries will continue their loose policies and global liquidity will remain ample, which will keep prices of commodities, especially crude oil and grain, at high levels.

To mop up the excessive liquidity that helps fuel inflation, the central bank has raised benchmark interest rates three times since the start of last year and increased the reserve requirement ratio for commercial banks nine times.
 

Key Words:  China macro economy 

Heightened Inflation a Concern in China

Data Analysis 10:10:30AM Mar 28, 2011 Source:SMM

Mar. 28 -- Spreading reports of price hikes for everyday products such as instant noodles, soap and shampoo have sprung up in newspapers across China, exacerbating concerns regarding ongoing inflation in the world's second largest economy.

In reports released earlier this month, unidentified sources said that four leading daily consumer product manufacturers -- Unilever, Liby, Procter & Gamble and Nice Group -- will raise prices by 5 to 15 percent starting next month. The four companies command four-fifths of China's consumer product market share.

Zeng Xiwen, vice president of Unilever Greater China, confirmed with Xinhua that several companies will raise prices, but declined to name them.

Tingyi, one of the largest food and beverage producers in China, also announced plans to raise prices for its instant noodles next month by 0.5 yuan ($0.08), the third such price hike since November.

All of the companies justified their price increases by citing higher costs of raw materials, such as flour and petroleum.

Rush buying of personal care products was reported in several Chinese cities after the increases were reported. Soap, shampoo and body lotion were sold out in several supermarkets in the city of Nanjing in east China's Jiangsu province, as well as the city of Shanghai.

Analysts said the spreading news of price increases could exacerbate inflation concerns in China and lead to a buying spree, especially among older consumers who suffered double-digit inflation in the late 1980s.

China's inflation has remained stubbornly high despite a series of measures introduced to dampen price increases.

The consumer price index (CPI), a major gauge of inflation, rose 4.9 percent in February, with inflation pressures spreading from the food sector to other industries.

Driven by rising raw material and energy costs, the producer price index, a major measure of inflation at the wholesale level, rose 7.2 percent in February. That was the highest the index had been since October 2008.

"This suggests deteriorating profit margins for manufacturers and the passing on of higher costs to consumers, which will add to inflationary pressures down the line," Li Wei, a Shanghai-based economist with Standard Chartered Bank said in an email to Xinhua.

Li expects China's CPI to rise by 6 percent between now and mid-2011.

"Rising global commodity prices and raw material costs, sustained price growth in the food sector and broad structural changes in China, such as faster wage growth and the need to raise prices of certain resources, mean that inflation is more stubborn and more difficult to fight this time," he said.

On Wednesday, crude oil prices reached their highest level since September26, 2008, with prices for May settling at $105.75 a barrel on the New York Mercantile Exchange.

Gao Shanwen, an economist with Essence Securities, said higher oil prices in coming months would further weigh on China's economy.

The Chinese government has prioritized price stability in this year's government work report and aims to keep consumer price increases at around 4 percent this year.

Speaking about this year's outlook, the People's Bank of China, China's central bank, said developed countries will continue their loose policies and global liquidity will remain ample, which will keep prices of commodities, especially crude oil and grain, at high levels.

To mop up the excessive liquidity that helps fuel inflation, the central bank has raised benchmark interest rates three times since the start of last year and increased the reserve requirement ratio for commercial banks nine times.
 

Key Words:  China macro economy