The December 2009 inflation statistics permit the first calculation of an annual rate of inflation since the adoption of the re-based index. This shows that average prices fell by 7,7% during 2009. The main reason for the decline is that the US dollar exchange rate in December 2008, against which the December 2009 prices are compared, carried a scarcity premium that had elevated prices to levels that could not be sustained when competition between the providers of goods and services began to take effect. Also, in the first months after the previously illegal use of foreign currency was legalised, shopkeepers and others had to pay a substantial registration fee in foreign currency to remain within the law. This had to be passed onto consumers, so prices could be reduced when the registration fees were waived.
As the most active competition was taking place between supermarket chains that had become heavily dependent on imports, the prices of food declined by 15,8%, measured year-on-year, and clothing prices declined by 18,1%. These declines might have been higher, but for the strengthening of the rand in the first half of 2009. In sectors where the main suppliers were local, the trends were often in the opposite direction. Housing costs, which are dominated by rent, rates and power, went up by 13,8%, transport by 8,9% and education by 10,6%.
In December 2009, prices on average rose by 0,48%, following upon relatively minor increases in food, housing costs, transport and alcohol, but larger increases were recorded for education, hotels and restaurants.
The summarised table is attached and the annual figure mentioned is shown at the bottom right. Further negative numbers might be expected in the first months of 2010, but the steep fall in the All Items averages in the months beyond the first quarter of 2009 are likely to result in the year-on-year figures moving above five percent towards the middle of 2010.
I hope to have the more comprehensive table on its way to you by tomorrow.