Here is the basic lesson of the fancy supply/ demand curves that economists like to draw distilled into one sentence - nothing beats lower prices for pushing up sales. Our supermarkets are learning this lesson again as the retail sales figures released this week show. Take any retailer's growth rate in the value of sales less the growth rate in his volume of sales and you have a pretty fair approximation of the inflation rate in the goods he sells. For supermarkets it is the one you see in the first chart. Quite a drop isn't it? In January last year, they were still able to push their prices up by about 6 per cent over the previous year. In January this year they had to take a 12.4 per cent decline in prices. Your correspondent was wondering why the three Dairy Farm outlets near his home in Repulse Bay had to be consolidated last year into one megamess in such a hurry as to send his family up the road to the Hutchison competitor in Parkview for groceries. Here may be a reason. Credit (or blame) Jimmy Lai with Admart and the general changes that the Internet is bringing to our shopping habits if you will, but there are other reasons that the drop in supermarket prices has been so steep. Increases in supermarket prices had been kept well above the general inflation rate of the consumer price index for almost two years before reality finally bit down on those supermarkets. We may talk of constant supermarket wars, but clearly the supermarkets had come to a peace agreement of some form over those two years. It is fortunate for shoppers that this is a business in which peace treaties are quickly dishonoured. Back to the basic lesson, however. Look at the second chart and you can see that consumers have responded very quickly indeed to these changes in supermarket prices. They are scooping the goods off the shelves again. On a six-month average basis, the volume of supermarket sales was up 14.5 per cent in January compared with a decline of 6 per cent the previous year. Notice here that even on a six-month average basis the chart shows a mighty volatile trend. The fact that the Lunar New Year moves back and forth across the Gregorian calendar each year quickly induces swearwords from anyone who tracks statistics in Asia. '&%*#$!!!' You see? Couldn't help it. Almost all of that up and down jerkiness of the line is due to this one factor. It is a good reason to be mighty cautious of those overall figures that say retail sales jumped 12 per cent in value and 20 per cent in volume in January. Count on it that February's figures will be much lower again. These things cannot be accurately measured in the first three months of any year. But the strength of the supermarket sales is clearly more solidly entrenched. There can be no doubting the recovery here. And our grocers should have known it. They are much closer than are economists to those supply/demand curves on a daily basis.