Unilever Hikes Prices after Being Fined

May 25, Consumer goods producer Unilever NV raised prices of some products in the same month that it was hit by the National Development and Reform Commission (NDRC) with a fine of RMB 2 million for talking about potential price hikes in early May.

On May 6, the NDRC fined the Anglo-Dutch company with RMB 2 million on the grounds of “disseminating news of upcoming price hikes that disturbed market order”.

Unilever accepted the fine, saying that it would comply with Chinese regulations and orders, but declined to show apologies for telling Chinese media its plan to hike prices.

10% Rise

Prices of Uniliver’s Hazeline and Lux branded bath wash and shampoo have risen by an average of 10% at a number of supermarkets, the Guangzhou Daily reported after being tipped by local consumers and supermarket sources.

“Prices of these products were supposed to increase on April 1, but postponed due to pressure from the NDRC. Anyway we’ve now received notice from the company [Unilever] to raise prices,” a person from a major supermarket in Guangzhou told the paper.

In late March, the NDRC had talked to consumer goods producers including Unilever and Procter & Gamble Co. about delaying their original plans to raise prices from April.

The companies agreed to accept the NDRC order but Unilever got fined after all. The company refused to comment on the recent price hikes or any issue regarding prices.

“Companies became reluctant to talk about price issues for fear of touching any sensitive nerve, given Unilever’s RMB 2 million fine case,” an industry insider told the Guangzhou Daily.

“Unilever did agree to delay price hikes, but made no such promise to halt rises forever; after all daily consumer goods producers have every right to increase product prices with solid reasons to do so, and the NDRC technically cannot interfere,” the insider said.

The NDRC did not give a timetable for the delay.

Soaring Costs

Soaring costs of raw materials have been a major reason behind consumer goods producers’ price hikes, as prices of daily chemicals used for producing daily necessities were pushed up by surging fuel prices.

China in April raised retail prices of gasoline and diesel for the second time this year, citing continuing rises in international crude oil prices as the motivation for the increase.

China adopted an oil pricing mechanism in early 2009 that allows the NDRC to adjust retail fuel prices when international crude oil prices change by more than 4% over 22 consecutive working days.

The rise caused disquiet amongst the Chinese public and some of those enterprises urged to suspend price increases.

Most of the companies talked to by the NDRC are privately held ones while state-owned enterprises dodged under the radar in the economic planner’s high-profile move of clearing off price hikes to avoid further impact on the country’s mounting inflation pressure.

“It’s a dead fact that soaring costs of raw materials are making days of consumer goods manufacturers difficult, but plus another pressure from an average 20% rise in the cost of logistics, [more and more] enterprises find it suffocating,” said Yu Xueling, secretary general of the Guangdong Chamber of Daily Chemicals.

Inflation Concerns

The NDRC, for fear of further pressure from rising inflation, decided to play its part by dragging in consumer goods producers for talks over halting price hikes. China’s inflation issue after all, remains fairly stubborn.

Prices of pork and some vegetables climbed for the third week in a row since the start of this month, according to data generated by the National Bureau of Statistics (NBS) on Tuesday based on its monitoring of average food prices in 50 domestic cities.

NBS data showed a 3.3% year-on-year growth in pork prices in mid-May, while prices of some vegetables climbed 16.4% y-o-y in the same period gauged.

Chinese experts believe the growth [in food prices] was stirred by droughts in some parts of the country, saying that consumer price index (CPI) could rise to a record-high this and next month given rising food prices.

Prices of other goods apart from food and of global commodities may also be important factors spurring further climb in CPI.

“Shortages of electricity supply, which have already occurred before the peak consumption season in the following months, may add pressure to consumer goods prices, hence pushing up the CPI,” Huang Lin, deputy director of the macroeconomic research center of Soochow Securities, told the China Securities News.

“CPI may reach the highest level for this year between 5.7% and 6% in June, and probably will not drop substantially from July on,” Huang predicted.

The paper cited another analyst whose name was not given as saying that external factors including prices of global commodities may also affect China’s CPI, which eased to 5.3% in April after hitting a 32-month high of 5.4% in March.

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