Rising costs force Unilever and P&G to put up China prices

Policy-makers in the world’s second-largest economy have been racing to contain consumer prices, which rose 4.9 per cent in February from a year earlier, to prevent inflationary expectations from settling in and contributing to further rises in the prices of everything from broccoli to beer.

State television yesterday showed images of empty store shelves in some Chinese cities as residents raced to pick up P&G and Unilever products before the price rises went into effect, highlighting the sensitivity to prices of especially poorer Chinese people, who are hit hardest by inflation.

Unilever confirmed there will be price rises across its portfolio to offset hikes in raw material costs but did give details after the Shanghai Daily said they would be up to 15 per cent. P&G could not be reached for comment.

The two companies, which sell a variety of products including shampoo, bath lotion and toothpaste, have a significant portion of the consumer goods market in China.

Anglo-Dutch Unilever has said raw material costs will rise by 4 per cent of its turnover in 2011 which analysts calculate as a rise of 12 per cent as prices of vegetable oils, crude oil and packaging have risen sharply, but it hopes to offset these by rising its own prices and making cost savings.

Unilever has the highest proportion of sales from emerging countries, at 53 per cent, compared to other big consumer goods groups and said it had a particularly strong year in China during 2010 with products such as Omo detergents, Clear and Dove shampoos, Rexona deodorants, Lipton tea and Wall’s ice cream.

The group saw its fastest growth in 2010 from emerging markets despite tougher competition, and sees these areas as key as it aims to grow ahead of its market and push up margins.

Economists said they did not think the price rises would impact the government’s fight against inflation significantly.

“I’m sure there has been a lot of monetary policy tightening, and if that’s the case, then inflation will start to come down,” said Paul Cavey, an economist at Macquarie in Hong Kong.