UPDATE 1-P&G, Unilever up China prices, highlights govt inflation task

* Latest sign of rising price pressures in China

* Monetary tightening helps gov’t stay ahead of

* Price rises could be minor stumbling block to inflation

* Government sensitive to inflation expectations

* Moves Monday to cap prices on certain drugs

(Adds background, analyst’s comments)

By Jason Subler and Melanie Lee

SHANGHAI, March 28 (Reuters) – Consumer goods giants Procter
& Gamble and Unilever will both raise their
prices on detergent and soap in China by up to 15 percent next
month, local media reported, underscoring the challenges Beijing
faces to rein in inflation.

Policy makers in the world’s second-largest economy have
been racing to contain consumer prices, which rose 4.9 percent
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 on Monday 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 a report on the price rises by the
English-language Shanghai Daily, which had said the rises were
on account of rising raw materials costs, but declined to give
additional details. 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
according to past statements by executives.

But economists said they did not think the price rises would
have a significant impact on the government’s fight against

“I’m increasingly sure that 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.

“This doesn’t really change our view on that, although it
could make getting there a bit more difficult.”

China does not publish the makeup of its consumer price
basket, but bank economists estimate the “health, medical and
personal products” category, within which consumer products
fall, has a weighting of about 9.5 percent.


China has raised interest rates and banks’ required reserves
multiple times in the past several months in an effort to tame
inflation, which has stabilised at under 5 percent after hitting
a peak of 5.1 percent in November.

Although food is the main driver of consumer price
pressures, the government wants to prevent inflation
expectations from growing. There are some signs its efforts are
starting to take effect.

A central bank survey released this month showed more
households were satisfied with current price levels and saw less
chance of rising inflation. [ID:nTOE72F01E]

A flash purchasing managers’ index (PMI) from HSBC Markit
last week showed that rises in factory input prices were their
slowest in at least half a year and increases in output prices
their weakest in seven months. [ID:nL3E7EO07J]

With overall rises in the prices of raw materials slowing
from last year and Chinese monetary policy now tighter, Cavey
said he thought Beijing could keep the situation under control.

“Now, commodity prices aren’t rising so quickly, monetary
policy has been tightened domestically. There is still some
inflation, but the government is getting ahead of the curve. I’m
not that worried about inflation in the second half of the
year,” he said.

Yi Yang, a deputy governor of the People’s Bank of China
(PBOC), said last week that China was facing strong price
pressures but inflation in the second half of the year would be

“So for the whole year, we will be able to meet the 4
percent goal,” he told a business conference in Hong Kong,
referring to the government’s 2011 inflation target.

Still, policymakers are sensitive to rising prices, so on
Monday required hospitals and clinics nationwide to cap the
price of certain drugs. [ID:nL3E7ES0K9].

Planned price rises by P&G, Unilever and other Western
companies have also drawn the attention of the public and

Shanghai’s Development and Reform Commission, the local
planning body, is investigating the matter of P&G and Unilever
raising prices, the Shanghai Daily said.

Earlier in the year, the economic planning agency fined
Wal-Mart Stores and Carrefour SA for
manipulating product prices. [ID:nTOE71L03Q]

McDonald’s Corp also raised prices on its menu in
China in November because of rising materials costs.

Western companies have raised prices elsewhere as well.

Earlier this month, P&G said it would raise its U.S.
detergent prices by 4.5 percent in June in response to rising
costs of raw materials, packaging and transportation.

China is not alone in feeling inflation pressures from raw
materials prices.

Global commodity prices have risen sharply in the past year.
Commodity prices, measured by the Reuters-Jefferies price index
, reached their highest levels this year since 2008. The
United Nations food agency has said global food prices hit a
record high this year.

(Additional reporting by Gui Qing Koh in Beijing and Ai Peng
Soo in Shanghai)

UPDATE 1-P&G, Unilever up China prices, highlights govt inflation task