Chinese hotpot restaurant chain Haidilao found out the hard way that Chinese consumers, buffeted by weeks of lockdowns and travels restrictions as well as rising worries about their jobs and incomes, are in no mood to see the price of food and other daily necessities increase. In the middle of March, the chain reopened its doors after being shut since late January due to the coronavirus outbreak, but customers were shocked to see prices had jumped by around 6 per cent, sparking many to express outrage on Chinese social media platform Weibo. A few days ago, buckling under pressure after diners flooded China’s version of Twitter with threats to boycott the company, Haidilao issued an apology and restored prices to pre-closure levels. It also offered discounts of up to 31 per cent on takeaway orders. Analysts say Haidilao’s experience points to one side-effect of the coronavirus outbreak: high downward pressure on prices that is likely to continue for some time. Haidilao said it initially raised prices to accommodate increased costs for ingredients and labour, and to also compensate for fewer customers because it had to cut the number of tables available in response to social distancing requirements. “We received criticisms from customers and the community. The price increase was a bad decision and it has hurt our customers,” the company said on Weibo. While diners empathised with the company’s predicament, most were upset that “basic food” had become more expensive in light of rising unemployment. “Prices of vegetables are rising but we have no salary,” one person complained on Weibo, while another said: “I just can’t afford it.” Raising prices at this time, it’s wrong Jia Guolong Xibei, another Chinese restaurant chain, went down the same path of initially raising prices at some of its restaurants in Shanghai only to also reverse the move later. The chain’s chairman, Jia Guolong, who had said at the onset of the outbreak the company could not last three months, apologised to his customers personally on Weibo. “I have received your feedback. Raising prices at this time, it’s wrong,” he said. Early increases in prices as firms sought to make up for increased costs resulting from the outbreak have now been largely rolled back in favour of lower prices that could persist long beyond the economy’s recovery amid mounting recessionary pressures and weak demand, economists said. Weak demand globally is likely to dampen inflation, and in some cases cause deflation – that is, a sustained drop in overall prices, they said. We are already starting to see evidence that supply disruption is causing the price of some goods to rise. This is particularly true of food Neil Shearing “We are already starting to see evidence that supply disruption is causing the price of some goods to rise. This is particularly true of food,” said Capital Economics’ group chief economist, Neil Shearing. “But the upward pressure on inflation coming from these items is likely to be more than offset by the downward pressure coming from other items. “Moreover, inflation in China should fall sharply over the coming months as the recent sharp drop in the price of oil feeds through and demand remains subdued.” But inflation in China and other emerging markets night not be dampened as hard as in advanced economies such as the United States and Europe over the next two years, but some Asian economies like Thailand, South Korea and Taiwan could experience deflation, according to Capital Economics’ Gareth Lather. Other evidence of falling food prices emerged last week when international hotel group Marriott posted an “explosive” discount on its daily buffet breakfast on online Chinese shopping site, Taobao. Marriott offered diners at any of its 146 hotels in China a monthly deal worth 588 yuan (US$83) to eat breakfast in the same hotel everyday, an average of around 19 yuan (US$2.7) per day. In early April, Chinese retailer Suning also slashed the price of the newest model Apple smartphone, the iPhone 11, by up to 17 per cent. Customers could buy the iPhone 11 Pro Max at a 1,600 yuan (US$226) discount, with prices for the standard iPhone 11 and iPhone 11 Max dropping between 7 and 14 per cent. So it seems like the pandemic has played a part in the vendors' decision to cut prices this time Buyer on Suning.com Before this, it was rare to see Apple or its authorised resellers like Suning offer discounts on models less than a year old, an avid buyer on Suning.com said. “So it seems like the pandemic has played a part in the vendors' decision to cut prices this time,” the buyer said. More confirmation of slowing inflation came from the latest Chinese consumer price index data for March. After posting an eight-year high of 5.4 per cent in January, headline inflation dropped for the second month in a row, to 4.3 per cent in March from 5.2 per cent in February. Food prices declined 3.8 per cent in March, after rising 4.3 per cent in February. But while demand will not bounce back quickly, dampened prices will also not last long either, said Wenli Zheng, portfolio manager at Investment management company T. Rowe Price. While we’ll likely to see widening discounts in a wide range of products and services, as companies work to clear the inventory, we do not subscribe to the view that lower pricing is permanent Wenli Zheng “While we’ll likely to see widening discounts in a wide range of products and services, as companies work to clear the inventory, we do not subscribe to the view that lower pricing is permanent,” he said. Some economists worry that the huge quantitative monetary easing steps being taken by major central banks – effectively creating money to add to the economy by buying financial assets – could boomerang to produce a sharp rise in inflation over time. “But surely this [quantitative monetary easing] is unnatural – money doesn’t just grow on trees? Some fret this can only lead to hyperinflation,” said AMP Capital chief economist Shane Oliver. “It’s not an issue right now as the slump in activity means a greater risk of deflation, but it could rapidly become an issue once growth picks up and spare capacity is used up.”