Nov 13 2007

Killer bargains! The stampede for cheap cooking oil turns deadly in China

Published by at 9:34 pm under China,Inflation

FT.com / Asia-Pacific / China – China sees fatal twist to inflation debate

Inflation is a serious worry among Chinese consumers right now. With increases in the price level hitting 6.5 percent, reaching an 11 year high this week, consumers nationwide can expect the price of commodities such as cooking oil to continue to rise. As we have learned, expectations of future prices is a determinant of demand, and when consumers expect prices to rise tomorrow, the tend to demand more today.

So what happens when, in a country where inflation is at an all time high, retailers announce sudden reductions in price on essential products like cooking oil? Well, here in China, it seems the price sensitive masses are quite the bargain hunters:

A Tesco supermarket in a suburb of Shanghai announced two weeks ago it would sell 3,000 bottles of cooking oi at half price. Hundreds queued and when the doors opened, there was a stampede. Nineteen people, most of them housewives, needed hospital treatment.

The cooking oil incident was one of several that have broken out across China in recent weeks. In the most serious, three people were trampled to death at the weekend in the western city of Chongqing after a Carrefour store offered a 20 per cent discount on five-litre bottles of rapeseed oil.

While stampeding fellow consumers to death may be an extreme outcome in the attempt to secure rations of essential commodities, the Chinese consumers’ worries may be well founded.

The inflation debate is starting to gather momentum again. With food prices on the rise again, October’s inflation rate, which is due to be announced on Tuesday, is expected to increase once more.

Chinese media have reported it could go as high as 6.7 per cent. Moreover, the government increased fuel price by 10 per cent last week and might be forced into further hikes amid continued reports of fuel shortages.

Beijing may begin to feel the pressure to exert its iron fist on rising prices, as some pessimistic economists and pundits relate China’s current inflationary situation to the “inflationary catastrophes” of 1988-89 – a prelude to the Ti**a*n*en Square turmoil…”

Not all looks dismal for consumers in China, however:

Jun Ma at Deutsche Bank in Hong Kong argues that sharp increases in labour productivity are more than compensating for rising labour and energy costs, allowing factories to avoid passing on price increases.

The prices of many consumer goods such as cars and electronic goods are also still falling, says Stephen Green at Standard Chartered in Shanghai. Rising food prices, he says, also serve to transfer wealth from urban to rural areas – one of the government’s long-term objectives.

I guess rural people don’t have to eat?!

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About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

25 responses so far

25 Responses to “Killer bargains! The stampede for cheap cooking oil turns deadly in China”

  1. Jo Loon 14 Nov 2007 at 10:53 pm

    As you can see, the problem of inflation has magnified to the point where people are getting hurt. With the increasing demand now for selected goods, inflation will increase due to the fact that prices will be on the rise.

  2. optional.xuon 15 Nov 2007 at 10:06 pm

    Whoa. Dang yeah the inflation of prices is crazy. Will this really spread the wealth from the urban to the rural people simply by making farm goods and food cost more? We all know that slashing prices is not good as it screws with demand and causes shortages like mega, but how is the government to alleviate the scramble for food as the impending doom of inflated prices looms over these people's heads?

    It's sad but the economy isn't perfect: it can solve the issue of demand and supply but at the same time it doesn't always consider morality along the way.

  3. Conrad Liuon 15 Nov 2007 at 11:31 pm

    Er…yeah ditto to what Jo and David said. I've never realized the other possible outcomes that can occur with a bad decision; that is, the decision to slash prices. As we've learned, reducing prices will only unbalance the demand and, like David says, shortages will ensue. Apparently, actual bodily harm can be a side-effect, since the opportunity to buy products at a greatly reduced price is too great to miss…indeed, that can be seen by the "stampede" and the hospitalizations of a dozen women.

  4. Chris Seahon 16 Nov 2007 at 11:20 pm

    Deadly stampedes always happen when there are huge price slashes; look at Wal-Mart. Enough people have died shopping to warrant a memorial. As for rising prices of commodities; it's both a good and bad thing. While this so-called "transfer of wealth" from the cities to the countryside could very well be taking place, it is being done at the expense of consumers. Toying with demand and creating shortages can be dangerous not only for the market but for shoppers, as can be seen in this article. Perhaps the government should choose to subsidize food producers instead, and keep prices down.

  5. ElaineLungon 17 Nov 2007 at 2:09 am

    "Rising food prices, he says, also serve to transfer wealth from urban to rural areas – one of the government’s long-term objectives."

    Call me cynical…but at what price is that going to occur? I'm with Chris on this one. Lowering prices, as we've seen in those countries in Africa, just screws a lot with demand and supply. It's worrying when groups of housewives are reduced to something akin to starving cattle for a thing like cooking oil.

  6. Nicoon 17 Nov 2007 at 6:14 pm

    The killer stampede for oil. Got to admit, that's pretty scary. But it makes sense, prices rising, buy more when cheap. Oil is so essential to us humans that a fight could easily take place to obtain it. I'm not too sure that lowering the prices was such a good idea. It makes it seem that oil prices in the future will go crazy high or something. Imagine if this ever happened for water. How many people will be willing to die to get just a little bit of water.

  7. SamueLamon 17 Nov 2007 at 8:59 pm

    The rise of the inflation rate doesn't sound good, and the government doesn't seem to be reacting to slow the inflation. Well we already do have wars over oil, the next war as many people predict is going to be over water. Fresh water will be very valuable in the future as there is no substitute for it. I think it is strange that money should be taken from the urban area, should it not be taken from the government? If you take money from people in urban areas, they will have less money to spend and won't buy as much consumer goods.

  8. Claire Moonon 18 Nov 2007 at 5:11 pm

    Wow. the expectation of rising price made this stampeding fellow consumers to death? it is going crazy! And making it even worse there is an inflation that is going to raise the price up higher than 6.7%. Well I don't know why the retailers set on a reduction SUDDENLY and made this whole CHAOS but I think whole cycle of consumers buying more and more due to their anticipation and the price going higher and higher due to the rising demand is making the situation worse and worse, so I am really curious how it is actually able to solve this problem in any possible way. Can the government actually solve this problem? or would the wrong cycle move on and on

  9. Soyeon Yoonon 18 Nov 2007 at 11:05 pm

    The inflation could have made the lives of people in rural area hard and i guess they were desperate to buy more commodities when the price of cooking oil was cheaper than it usually was.. The firms or stores succeeded in attracting consumers by lowering the price of course, but the cost of it was people's lives. With the high inflation rate of 6.7 percent, government should not just watch what will gonna happen, but it should take strong measures.

  10. Kathie Leeon 19 Nov 2007 at 1:14 am

    These incidents that occurred show the extreme measures people are willing to go in order to fight for lower prices and the disastrous effects of inflation. I don't understand the point of slashing the prices for the bottles of oil especially when it is only for a limited amount of bottles. It may solve the issue of supply and demand, but is it worth it?

  11. Howard Jingon 19 Nov 2007 at 4:19 pm

    What would be a better way to alleviate the increasing price of cooking oil? To subsidize the production of olives and other ingredients to attract more people into the business of cooking oil manufacturing?

  12. Jenny Kimon 19 Nov 2007 at 7:26 pm

    Well, I think this article well shows how inflation can be threatening in the society. The government will have to take actions to improve this situation. Although we learned in class that price floor and price ceiling set by the government is not necessarily successful, i guess at least for the safety of the people, the government wil have to take actions in this industry.

  13. mina.songon 19 Nov 2007 at 8:49 pm

    I kind of feel it on top of my skin, because I have lived in Tianjin and I move to the shanghai, one of the most developed cities in China. When I was in Tianjin many of stuffs were much cheaper than it is in shanghai. Even I feel this way, how much impact has affected to Chinese local people is imaginable.

    This inflation implies that China is developing but to rural Chinese people, I thin k it will be better to be poor country than rich country.

  14. serenatuon 19 Nov 2007 at 9:44 pm

    Although we have learned that lowering price will increase the quantity demand, it surely does not

    seem to be like that in this case. The increasing of price totally messed up the demand. Oil is probably a necessity, at least for my family it is, we cook with oil everyday, and now by lowering the price, people will want to rush in and buy them in the lowest possible price. Now the government better take some action to improve this situation.

  15. Trevor Sunon 19 Nov 2007 at 9:46 pm

    Dahil, people getting stomped over for cooking oil?? I didn't even know that China is facing these kinds of problems. Plus the ideals of the government to transfer wealth from the cities to the countryside is wack; decreasing the prices of luxuries while increasing the prices of food…Doesn't make much sense.

  16. Takaon 19 Nov 2007 at 10:07 pm

    Inflation on food too? This is just insane… Everything in the world is just getting more expensive and the poor have to suffer. But is it possible for a firm in the cooking oil industry to price discriminate or would that not even affect the problem? Charging less for cooking oil in rural areas of China as mentioned by Mina seems like its sort of working but i guess not. Well for one i think the main problem is that China doesn't have a minimum wage that changes with the inflation. Most rural workers get underpaid thus in the end they wouldn't be able to afford such nessecities.

    But I kinda disagree with Jenny or other people mentioning full government intervention. I don't think we want another Zimbabwe where soon people will trample each other to find a crum of bread. Instead as mentioned before, a minimum wage that changes with inflation may work… who knows

  17. Jeewon Ohon 19 Nov 2007 at 11:02 pm

    I didn't know that inflation was such a big issue in China. The retaliers were probably reducing the price of commodities in order to enable the consumers to purchase essential products, in this case cooking oil, yet it has just created chaos. I don't think price reduction was a very good idea. Everyone knew that the prices of cooking oil will soon rise again in the future, hence stampeded into the supermarket. Just as a few others have already mentioned, a price ceiling set by the government may be helpful.

  18. calvinluon 20 Nov 2007 at 12:35 am

    Well I suppose there is no choice but to rely on government intervention. The firms have to increase their price since the cost on resource is increasing, but food is inelastic since it is a necessity for everyone, so people have pay a larger proportion of their income on food. This may mean a lot of the low incomes. So government should set a price ceiling in favor of the consumers and subsidize the firms in order for them to cover their loss.

  19. timothysunon 20 Nov 2007 at 1:36 am

    I see that demand is pretty high for cooking oil. 😛

    Cooking oil appears to be very elastic, even though it's a necessity. I mean, the price drops by half, and suddenly, the quantity demanded increases rapidly. Does this defy the determinants of PES? Or are the Chinese not behaving rationally?

    I agree with Calvin that the government should intervene, as much of a laissez-faire person I am, to set a price floor on this kind of stuff.

  20. Jonathan Lauon 20 Nov 2007 at 8:14 pm

    I will have to agree with the rest of you who said that the government should intervene and set a price floor. The price for oil is being reduced so much that people are being killed in stampedes in supermarkets. How crazy is that? In this case, an inelastic product like oil (a necessity) is seeing a huge increase in demand because prices were changed. This defies the concept of inelasticity, which means that it is evident prices were slashed way TOO much. The government definitely needs to do something about this situation before more people die in these silly "stampedes."

  21. Cassy Changon 20 Nov 2007 at 9:30 pm

    i think people will get over the sudden crazy for oil while it's cheap. it's not like they'll use more oil…oil is pretty inelastic i'd say. too much oil clogs up the cardiovascular system anyway, so i say the government should put a price floor on the product.

  22. Drew Venkatramanon 20 Nov 2007 at 11:04 pm

    wow flaxseed oil? who would have thought it! Needless to say the inflation has also caused some frenzy in which people have bought up oil like crazy. Oil needs are pretty inelastic but i would think that thers is some kind of monopolistic competition, theres different types of oil depending on your budget which probably is what leads to this frenzy we are seeing right now.

  23. Annie Sungon 21 Nov 2007 at 11:16 am

    The cheap prices are definitely attracting more customers, but I feel that the government should not just randomly issue major price reductions, as they may result in serious injuries, like this case. Instead, like Cassy said, they should issue a price floor and gradually lower prices so that the lower class can afford it, but not cause such a scene.

  24. kevinhuangon 22 Nov 2007 at 7:46 am

    I don't agree with what cassy has to say about oil for chinses people. Chinese people use oil for almost everything they cook. Maybe they are already dont have enough money to buy all the oil they need for cooking, and furthermore, why would they care about cardiovascular systmes. o_O

  25. James Tsaoon 28 Nov 2007 at 10:49 pm

    Haha! of course rural people have to eat! But I think what Stephen Green is saying is that food in urban areas are increasing at a rate that out-paces the food prices for rural areas. In other words, middle to high-class food have experienced more of a drastic incline in price because of global influences. Because of this, people in rural areas, many of them farmers, can sell their products for higher prices while the food that they eat are not increasing as much.