--- title: "A New Era of Inflation: Air Conditioners, Eggs, and Even Shampoo Prices Rise, Paper Prices Soar... 'We Can't Take It Anymore!'" description: "Egg prices are surging, and while some economists attribute this to seasonal factors and weather, the reality is that consumer goods prices have been collectively rising since last year. In February, several listed companies raised product prices, signaling a new wave of inflation, which has continued six months later. Raw material prices are hitting new highs, and more consumer goods are joining the price hikes." author: "New Distribution" publisher: "New Distribution" email: "zhaobo258@gmail.com" telephone: "+8615854817671" published: "2017-09-15" language: "en" canonical: "https://xinjignxiao.com/en/articles/a-new-era-of-inflation-air-conditioners-eggs-and-even-shampoo-prices-ris-6df393f2/" markdown: "https://xinjignxiao.com/en/articles/a-new-era-of-inflation-air-conditioners-eggs-and-even-shampoo-prices-ris-6df393f2.md" original_source: "https://mp.weixin.qq.com/s/uID0cqoTqTIVAKKXyhGQng" translation: "https://xinjignxiao.com/zh/articles/%E6%96%B0%E9%80%9A%E8%83%80%E6%97%B6%E5%88%BB-%E7%A9%BA%E8%B0%83%E6%B6%A8%E4%BB%B7-%E9%B8%A1%E8%9B%8B%E6%B6%A8%E4%BB%B7-%E8%BF%9E%E6%B4%97%E5%8F%91%E6%B0%B4%E4%B9%9F%E5%9C%A8%E6%B6%A8%E4%BB%B7-%E7%BA%B8%E4%BB%B7%E6%B6%A8%E5%BE%97%E6%9B%B4%E6%98%AF%E7%A6%BB%E8%B0%B1-%E5%AE%9E%E5%9C%A8%E6%92%91%E4%B8%8D%E4%BD%8F%E4%BA%86-6df393f2.md" attribution: "New Distribution — https://xinjignxiao.com/en/articles/a-new-era-of-inflation-air-conditioners-eggs-and-even-shampoo-prices-ris-6df393f2/" usage_policy: "https://xinjignxiao.com/ai-policy.txt" --- # A New Era of Inflation: Air Conditioners, Eggs, and Even Shampoo Prices Rise, Paper Prices Soar... 'We Can't Take It Anymore!' > Egg prices are surging, and while some economists attribute this to seasonal factors and weather, the reality is that consumer goods prices have been collectively rising since last year. In February, several listed companies raised product prices, signaling a new wave of inflation, which has continued six months later. Raw material prices are hitting new highs, and more consumer goods are joining the price hikes. Recently, egg prices have been on a relentless rise, and many "economists" attribute this to seasonal factors and weather, such as hens laying fewer eggs in extreme heat, arguing that inflation is not imminent. However, "hens not laying eggs" cannot explain the collective rise in consumer goods prices since last year. In February this year, multiple listed companies raised product prices, signaling a new wave of inflation. Six months on, this trend continues. Not to mention that some raw material prices have hit new highs, and more consumer goods are joining the price hike bandwagon, driven by both rising costs and consumption upgrades. Take the smartphone industry, for example. Domestic brands, which were once engaged in fierce price wars, have seen a wave of price increases this year. The release of the "most expensive iPhone ever" has further opened up room for domestic phone price hikes. The latest iPhone 8 starts at 5,888 yuan, while the iPhone X 256GB version is priced at 9,688 yuan, approaching the "10,000-yuan phone" mark, likely triggering a new wave of phone price increases. Since smartphones became widespread, the iPhone has been the benchmark for global phone pricing, with all smartphones priced relative to Apple. Simply put, the question is: how much cheaper than Apple can you sell your product? Currently, Samsung's Note 8 and Huawei's Mate 10 are also rumored to be priced higher than their predecessors. In fact, Xiaomi, known for its ultra-high cost-performance, broke its usual flagship pricing of 1,999 yuan in April this year, raising the starting price of the Mi 6 to 2,499 yuan. The newly released Mi MIX2 starts at 3,299 yuan, with the full ceramic premium edition priced at 4,699 yuan. The transmission of price increases from raw materials to finished products has already occurred in some products, and consumption upgrades have exacerbated the price rises. Undoubtedly, with cost pressures and consumption upgrades, a "new era of inflation" is dawning. How much longer can companies without pricing power and the ability to pass on costs survive? **From Air Conditioners to Shampoo: A Surging Wave of Consumer Goods Price Hikes** Besides phones, many consumer goods have been rising in price over the past period, with the wave sweeping across various products and industries. **Air conditioners are rising:** According to CMM (China Market Monitor) retail data, the average price of domestic air conditioners in July increased by 10.02% year-on-year to 3,613 yuan per unit, with Gree and Midea rising by 8.25% and 6.84% respectively. **Range hoods are rising:** According to Robam Appliances' investor activity records on September 1, the company raised its ex-factory prices on April 1 this year. CMM data shows Robam's average retail price in the first half of the year increased by 8.17% year-on-year. **Shampoo is rising:** According to Lafang Home's operating data for the first two quarters, the average selling price of its hair care products rose 7.12% year-on-year in Q1 and 3.56% in Q2. Similar situations occurred with Shanghai Jahwa and imported cosmetic brands. **Baijiu (liquor) is rising:** According to GF Securities research, the wholesale price of 53-degree Feitian Moutai rose from 840 yuan at the beginning of 2016 to 1,450 yuan by the end of July this year, an increase of 73%; the wholesale price of 52-degree Wuliangye rose from 620 yuan to 680 yuan, up about 17%. Even so, Moutai remains hard to find. **Sofas are rising:** Man Wah Holdings stated in its annual report that it raised wholesale and retail prices of functional sofas in mainland China by 5% in May this year. **Health products are rising:** Pien Tze Huang announced on May 27 that due to rising costs of main raw materials and labor, it decided to raise the retail price of its flagship product from 500 yuan to 530 yuan per pill. Although the CPI year-on-year growth has been around 2% for most of this year, economists are still debating whether we have entered an inflationary era. But reality tells us that rising prices are the theme. Many economists globally are quite reliable, but there are many exceptions in China. They are too busy either endorsing financial fraud platforms for profit while dealing with lawsuits from flight attendant mistresses, or they are obsessed with official careers, desperately flattering superiors in nauseating ways, only to accidentally kick the horse's hoof. **Environmental Protection and Capacity Reduction: Raw Material Prices Soar, Upstream Profits Boom** The continuous capacity reduction over the past few years, coupled with the rise in global commodity prices since last year, has led to higher upstream product prices, a major driver of the widespread increase in consumer goods prices. **For example, the steel industry.** According to the National Bureau of Statistics, during the ongoing capacity reduction, the number of enterprises in the ferrous metal smelting and rolling industry (mainly steelmakers) with revenue over 20 million yuan decreased from 10,071 at the end of 2015 to 8,491 by the end of June this year, a reduction of 1,580. With capacity reduction came rising steel prices. According to the China Iron and Steel Association, the domestic steel price index rose from a low of about 54 at the end of 2015 to 115.29 on September 1 this year, an increase of 113.5%. The 32 listed steel companies on A-shares had a combined net profit of 24.2 billion yuan in the first half of this year, compared to 3.2 billion yuan in the same period of 2016, a year-on-year increase of 656%. **Another example is the paper industry.** Pulp accounts for about 60% of papermaking costs, and coal about 10%. With capacity reduction and stricter environmental policies, the market price of bleached chemical pulp has risen from 4,440 yuan per ton at the beginning of 2016 to 5,861 yuan per ton by the end of August this year, an increase of 32%. The coal price index rose from 124 at the beginning of 2016 to 158 in early September 2017, up 27.4%. As a result, paper mills have been raising prices. For example, high-strength corrugated paper, widely used in product packaging, saw its market price rise from about 2,500 yuan per ton a year ago to 4,467 yuan per ton by the end of August this year, an increase of 78.7%. In the first half of this year, the 27 listed paper and paper products companies on A-shares had a combined net profit of 5.96 billion yuan, up 144% year-on-year. When upstream industries are raking in profits, it often means direct cost pressure on downstream industries. Steel is a basic raw material for the home appliance industry, accounting for about 30% of the cost of air conditioners, refrigerators, and washing machines, and up to 60% of range hood costs. Rising raw material prices directly increase cost pressure and squeeze profit margins for home appliance companies. Rising paper prices will directly lead to higher packaging paper prices, especially for the consumer goods industry, where packaging cost pressure is sharply increasing. The rise in raw material prices is directly reflected in the PPIRM (Industrial Producer Purchasing Price Index) and PPI (Producer Price Index). The chart below shows the year-on-year growth rates of CPI, PPI, and PPIRM: Although the year-on-year growth of PPI has eased to 5.5% in recent months, it has been rising since the beginning of 2016, reaching 7.8% in February this year, the highest in nearly nine years. More notably, since the end of 2016, the year-on-year growth of PPIRM has exceeded that of PPI, maintaining a gap of about 2 percentage points this year. It is highly likely that the pressure of rising raw material prices will continue to transmit to PPI and CPI. **Beyond Soaring Raw Material Prices, Consumption Upgrades Are Also a Driver** In addition to cost pressures, consumption upgrades are another reason for this round of consumer goods price increases. After all, China's per capita GDP has grown from 26,222 yuan in 2009 to 53,980 yuan in 2016, just crossing the important threshold of $8,000. Experience from major developed countries shows that when per capita GDP exceeds $8,000, consumption often enters a phase of rapid upgrading. Take kitchen appliances as an example. The product structure is further upgrading to the high-end. In the first half of this year, the average price of range hoods continued to rise, with the industry average price increasing by 12.01%. High-end brands Robam and Fotile saw their market shares rise from 23% and 21% in 2013 to 25% and 23% in 2016, respectively. In recent years, range hoods have seen a trend where "the more expensive the product, the better it sells," as consumers clearly demand higher functionality, brand, and durability. According to financial report data, Gree Electric's product prices are also rising. Besides the unusually hot weather this year, Gree's R&D investment in key technologies during Zhu Jianghong's era enabled it to develop mid-to-high-end air conditioners, which is also the foundation for Gree's current profit recovery and record market value. Although many of Dong Mingzhu's current actions are not favored by minority shareholders, such as the related-party transaction with Zhuhai Yinlong, Zhu Jianghong's 24-year tenure laid a solid foundation for Gree, establishing its leading position and ensuring it did not fall behind in this consumption upgrade. Gree's current total market value of over 200 billion yuan can be seen as a release of the value accumulated during Zhu Jianghong's era. Fuling Zhacai, when discussing price increases, once stated that its price hikes were not simply increases but corresponded to product upgrades, and should be seen as a return to value through quality improvement. The impact of consumption upgrades on the baijiu industry is also evident. As the impact of public consumption and the alcohol ban on the high-end liquor market has faded, private consumption demand for high-end baijiu has grown. According to research reports, the share of personal consumption in domestic baijiu consumption structure rose from 18% in 2012 to 65% in 2016. **The Era of Consumer Goods Upgrades Under Dual Pressure: Will Companies Without Pricing Power Be Eliminated?** On one hand, raw material prices are soaring; on the other, there is demand for consumption upgrades. Together, they are driving the current wave of consumer goods price increases. However, not all products that raise prices will find consumers willing to pay. If a price increase leads to a sharp drop in sales and market share, the company still won't make money. Only companies with brand influence and pricing power can survive and grow stronger in this era of consumer goods upgrades. Take Robam Appliances, for example. This stock has risen eightfold in five years and is truly a bull from an operational perspective. Robam has consistently maintained gross margins above 50%, and in recent years, nearly 60%. To put that in perspective, Apple, which rakes in money globally, has a gross margin of around 40%. So, soaring raw material prices are something high-margin companies like this can withstand. But Robam has been raising prices while expanding market share, ultimately due to its brand strength and pricing power. Companies that rely on price wars to grab market share, without focusing on quality or quantity, may face a life-or-death question in the future consumption upgrade era: if raw material prices rise, profits cannot bear it; if product prices rise, consumers won't buy. If consumer goods companies are still within your investment scope, you need to carefully select and identify which companies truly have pricing power. In a sense, brand means higher capital returns—consumers are willing to pay more even after price increases, allowing the company to enjoy higher ROE and ROA. ## **Speculating in Real Estate or Stocks? Better to Speculate in Paper! Complaints Are Useless! It's Just Rising!** Nowadays, "speculating in real estate or stocks is not as good as speculating in paper" is no joke. Since September last year, Chinese paper prices have been on an upward trend, and since June this year, there have been waves of increases. Since the low point on May 24, the A-share paper sector has risen nearly 30% overall. Among individual stocks, Sun Paper, Chenming Paper, Shanying Paper, and others have risen over 50% since May 24. Hong Kong-listed paper stocks have also performed well. On Tuesday, the entire sector rose. Zhengye International rose 6.5%, Nine Dragons Paper and Sunshine Paper rose 5.3%, Lee & Man Paper rose 3.7%, and Chenming Paper rose 2%. In the spot market, "price increases are everywhere," and companies are frequently raising prices. According to a report by Securities Times citing Zhuoze Zhao, an analyst at Zhuochuang Information, since July and August, paper price increases have been frequent, changing from once a month to once every half month, once every ten days, once a week, and some companies even change prices daily! Therefore, amid the surge in raw material prices, food companies have finally been overwhelmed and have successively issued price adjustment notices. **Food Companies Successively Issue Notices to Adjust Supply Prices,** **"We've Really Done Our Best!"** "We've really done our best." In recent days, food companies, unable to bear the multiple rounds of raw material price increases, have officially issued notices to adjust supply prices, and distributors across the country have expressed understanding. For example, a food company in Longhai City stated in its price adjustment notice: "Due to the recent crazy rise in raw material prices, exceeding our procurement cost limit by 30%, carton supply prices soaring by 50%, and film packaging supply prices rising by 20%, our company has always stood from the customer's perspective and kept prices unchanged, enduring losses for nearly a month. We hoped raw materials would recover, but unexpectedly all materials continued to rise, far exceeding what we can bear. Our company is overwhelmed and finds it difficult to maintain normal operations." A food company in Suzhou stated in its price adjustment notice: "Due to the significant increase in raw material and packaging auxiliary material prices this year, it has brought great difficulties to the company's production... After research and decision by the company's leadership, starting from September 15, 2017, all product prices will be adjusted: meat products series up by 10 percentage points, and other products up by 5 percentage points..." A beverage and food company in Cixi stated in its notice: "Due to the substantial increase in raw material costs recently, after careful consideration, the company has decided that starting from September 10, 2017, the cake items (2.5KG/piece) will increase by 2 yuan per piece, biscuits by 1 yuan per piece, wafers by 1 yuan per piece, and crispy cones by 1 yuan per piece." As the tide rises, many food companies have already issued price adjustment notices, with increases ranging from 1 to 2 yuan. Moreover, reports indicate that the sharp rise in carton prices has severely affected supply chain efficiency. A food company executive said: "Paper prices keep rising, and procurement basically relies on grabbing." The operator also revealed that there was a near miss where supply could not keep up with shipments: "We convened our offices in the Greater East China region to coordinate. Originally, we only kept a two-to-three-day inventory of cartons, but at one point, we were stocking up two months in advance." **Factories Stop Accepting New Orders** **From "Shock," "Anger," "Helplessness" to "Acceptance"** The reason for this round of carton factory price increases is mostly due to limited supply of base paper and crazy price hikes. As stated in the price increase notice from Wenling Forest Packaging Co., Ltd.: "Due to the continuous impact of papermaking environmental non-compliance leading to the shutdown of most paper mills and production suspension for rectification of a few, base paper is currently in a state of 'price but no goods or quantity,' causing our procurement costs to continue to rise." Additionally, Changsha Senbo Office Equipment Sales Co., Ltd. issued a notice: Due to the recent surge in paper prices and other cost increases, factory product supply capacity is tight, making it impossible to deliver this month's orders on time. Starting from September 12, the factory will stop accepting new orders. Given this situation, our company will only accept orders of less than 200 boxes and will require cash transactions. Since the end of July, paper mill price increase notices have become more frequent, with base paper prices repeatedly setting new records, continuously breaking the psychological expectations of downstream packaging companies. As stated in the price increase notice from Xuchang Shangzhan Packaging Co., Ltd.: "We understand your anger very well. Please believe that we have also gone through 'shock,' 'anger,' 'helplessness,' and 'acceptance.' According to the national environmental protection policy for 2017, there is still much room for base paper prices to rise in 2017." "Shock," "anger," "helplessness," and "acceptance"—these few words summarize the psychological journey of carton factories through this year's base paper price surge. So, what comes after "acceptance"? After experiencing so many price increase notices, many carton factory bosses no longer hold hope for a decline in paper prices. **Facing the Upcoming Price Surge, a Netizen Couldn't Help But Compose a Doggerel** I look into the distance, above the market. How many things are freely rising. Yesterday was already crazy, emptying the cargo hold. I want to reunite with you on the road of grabbing goods. Supply is getting tighter, I can only recall. The days with goods were like heaven. Oh... Oh... Who is shouting, "Prices, rise quickly." Expensive raw materials drift like white clouds, Today prices adjust, tomorrow they rise again. Piles of banknotes are all invested in inflation! In the desolation of being unable to take orders, Where is the road for the food industry? Should we close factories and return to our hometowns early?? Finally, the editor wants to say, If you have friends in the FMCG industry, Please give them a little more help. The industry is not thriving, and policies are high-pressure, The "pressure" is already great, Facing continuous raw material price increases, Price adjustments are a helpless move! As a long-time partner, Please give them a little more understanding! Let them feel the warmth of the world! compiled from: Bread Finance, Food Business **The 3rd (CFIC) China FMCG + Internet Conference** will be held in Chongqing in November 2017. The conference will closely focus on the theme "New Forces, New Ecology," inviting **1,000+ distributors, 500+ brand owners, 200+ B2B platform founders, and 100+ investment and financing institutions** to explore a new chapter of cross-border integration! **Registration is now open. Long press the QR code below or click "Read Original" to register. Early bird tickets before September 17 enjoy a 30% discount!** Add friend and note "Conference Registration" Click the links below to review the highlights of the 1st and 2nd FMCG + Internet Conferences: 2016 "FMCG + Internet" Summit Forum 2017 (2nd) China FMCG + Internet Conference Click the links below to review the highlights of the 1st and 2nd FMCG + Internet Conferences: [2016 "FMCG + Internet" Summit Forum]() -END- --- ## Copyright and AI use This article is sourced from New Distribution. Search, quotation, summarization, and model training are permitted, but every use must credit New Distribution and retain the canonical source URL. 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