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China fines Unilever for soap price increases

Chemical companies, Consumer demand, Economic growth, Financial Events, Futures trading, Oil markets
By Paul Hodges on 11-May-2011

Tesco China.pngThere seems little doubt that China is increasingly worried by rising inflation.

The latest sign is Unilever, the giant consumer products company, being fined $300k (RMB 2 million), for discussing plans to increase prices due to higher raw material costs.

Those who can remember the US WIN (Whip Inflation Now) programme, or the UK’s Prices and Incomes Board, will know what happens next.

Shortages will develop as companies refuse to sell at a loss. And China’s position may be worse than the USA/UK’s, as its army of small stallholders may instead start selling on the black market.

The incident also highlights worrying aspects of consumers’ buying behaviour:

• Many supermarkets saw shelves cleared of soap, detergent and shampoos, as shoppers rushed to stock up before prices rose.
• This is the same pattern seen recently amongst chemical buyers, who have panic-bought in order to secure supplies as oil prices rose.

It therefore appears that inventories are well above normal, all along the value chain, even in China. This makes the blog question yet again, the widely held belief that the recent combination of higher prices and strong demand indicates a robust global economy.

Update: China reported today that inflation slipped slightly to 5.3% in April, whilst food price inflation stayed worryingly high at 11.5%.