What determines price fluctuation of groceries
"Yes and no. First off, commodity prices reflect the cost of a good about 3 steps back in the retail supply chain; the agreed-upon price for the raw foodstuff between farmers/ranchers and manufacturers. Your grocer may carry bags of whole grain wheat, but that's certainly not all he carries that contains it. Same for corn, rice and other staple grains, as well as for fruits and vegetables, herbs (yes, you can buy basil by the ton on the CME), meats, various sugars, etc. So, a long-term sustained change in prices of a commodity foodstuff will eventually affect the real cost to you to buy things they're made from. However, in the short term, the retail supply chain will generally act as a buffer between these prices and the ones you see on the store shelf. Consumers don't like price increases, especially of necessities like food. When food costs go up, consumers can and will very quickly change their spending habits, buying cheaper options to get their needed calories. That makes manufacturers nervous; consumers not buying their product is a worse scenario than consumers buying their product at a reduced gain or even at a loss. So, manufacturers, and suppliers and retailers, will all absorb as much as they can of the cost of a commodities increase before beginning to pass it on to consumers. On the flip side, while consumers like price drops, they don't notice them as much as price increases. So, the supply chain will also absorb a fall in commodity prices by resisting price reductions in the consumer goods, as long as they can get away with it (which is usually longer than the price reduction actually lasts). The net effect is that processed food prices typically follow the gentle upward climb of long-term inflation, and only rarely do you see drastic price increases or decreases. Where this model breaks down a little bit is in highly perishable foodstuffs, especially seasonal or ""wild-managed"" foods; fruits and vegetables, seafood, etc. The limited time in which the stuff can be sold makes the process of getting a fish out of the ocean and a fruit off the tree and into your grocery store much more market-driven; the producers, suppliers and grocers are all in constant contact over what's available and how much they can get for what price. The prices therefore are typically a lower markup (unlike highly processed grain-based foods, there's not much added value to be marked up between the apple farmer picking the fruit and the grocer putting it on display), but also much more volatile; if there's a bumper crop of fruit, the farmer has to unload it all or it goes to waste, while similarly if an early freeze decimated the apple crop, the suppliers can't just get some of last year's bumper crop out of storage; they fight with everyone else for what little made it to market. Farmers will sometimes intentionally let excess crop spoil in order to maintain a minimum price for what they sell (the rest can at least be composted and used for fertilizer, saving them some money on maintenance), but there's no silver bullet for a shortage. This is why a lot of these foods, especially seafood, are considered luxury items; they're not stable enough for everyone to get as much as they want whenever they want, unlike staple grains." "No. Some grocery stores may discount specific products based on inventory to drive sales using ""loss leaders"" where the product is intentionally priced as a loss for the business. While commodity futures may impact some prices, I'm not sure one can easily extract the changes solely due to futures shifts." That is true. Since commodities are basically a futures contract, their actual price is not reflected in grocery stores. It is more of a supply and demand issue with your grocer.
The mechanism of supply and demand is imperfect.  Producers don't know exactly how many purchasers/consumers for a good there are.  Some goods, by their nature, are in short supply, and some are plentiful. The process of price discovery is one where (in a nominally free market) producers and purchasers make offers and counter-offers to assess what the price should be.  As they do this the historical price changes, usually floating around some long-term average.  As it goes up, we experience inflation.  As it goes down, deflation. However, there isn't a fixed supply of producers and purchasers, so as new ones arrive and old ones leave, this too has an impact on supply and prices. Money (either in electronic or physical form) needs to be available to reflect the transactions and underpin the economy. Most central banks (at least in more established economies) aim for inflation of 2-4% by controlling the availability of money and the cost of borrowing new money.  There are numerous ways they can do this (printing, issuing bonds, etc.). The reason one wants some degree of inflation is because employees will never accept a pay cut even when one would significantly improve the overall economy.  Companies often decrease their prices in order to match lower demand, but employees don't usually accept decreased wages for decreased labour demand. A nominal degree of overall money inflation therefore solves this problem.  Employees who get a below-inflation wage increase are actually getting a wage cut. Supply and demand must be matched and some inflation is the inevitable consequence of this. It's the buying and selling of the stock that causes the fluctuation in prices, not the news. People buy and sell all the time, and not just for newsworthy reasons.  They may have to send a child to college, or fix a roof, etc.  Or they may be technical traders looking for signals.  All kinds of reasons. The general discussion of inflation centers on money as a medium of exchange and a store of value. It is impossible to discuss inflation without considering time, since it is a comparison between the balance between money and goods at two points in time. The whole point of using money, rather than bartering goods, is to have a medium of exchange. Having money, you are interested in the buying power of the money in general more than the relative price of a specific commodity. If some supply distortion causes a shortage of tobacco, or gasoline, or rental properties, the price of each will go up. However, if the amount of circulating money is doubled, the price of everything will be bid up because there is more money chasing the same amount of wealth. The persons who get to introduce the additional circulating money will win at the expense of those who already hold cash. Most of the public measures that are used to describe the economy are highly suspect. For example, during the 90s, the federal government ceased using a constant market basket when computing CPI, allowing substitutions. With this, it was no longer possible to make consistent comparisons over time. The so-called Core CPI is even worse, as it excludes food and energy, which is fine provided you don't eat anything or use any energy. Therefore, when discussing CPI, it is important to understand what exactly is being measured and how. Most published statistics understate inflation. We need to be careful what we are talking about here. Inflation on a economy-level scale at an expected rate will not change consumer habits because the price increase is manageable. You have to realize that prices are not increasing in isolation: wages will have to rise along too.  High inflation that is expected will increase consumption of durable goods, as people attempt to 'get rid of their money' before the price changes on them. A good example of this was post-WWI germany, where hyperinflation was so bad that offices began to pay their employees twice daily, so they could adjust their wages, and so that their employees could go out during lunch and after work to buy something with the money before the price changed on them. Unexpected inflation may cause a temporary dip in spending until wages adjust, however consumers still need to buy, so they will likely push for higher wages, leading to consumption to stay about level. There is another effect to inflation as well: People who have savings will have their savings eroded over time if the economy is inflationary. To preserve their wealth, they will invest it. In a deflationary environment, money will increase in value simply by being hoarded, so they will be less willing to invest it. Deflation also increases the cost of interest on a loan, while inflation decreases it. So the overall effect is for an increase in spending under inflation, and a decrease under deflation. The person you have quoted is quite wrong. Price increases in a particular sector will cause consumer spending to decrease but this is a bad example, as it is not inflation, but rather a supply/demand problem of a particular consumer good. They are applying a micro-economic model (price increases of a single good) to a macroeconomic problem (price increases in the entire economy) when price increases at a global scale have the opposite effects. A good theoretical test of this is: what would happen if everyone in the US suddenly had twice as much money? (Ignoring international trade, of course). The answer: prices will double, and nothing else will change. The reason is, people will have more money to spend, but will require more money for their services, so in the end it all cancels out. An economy produces goods and services and people use money to pay for those goods and services.  Money has value because people believe that they can buy and sell goods and services with it in that economy. How much the value of money is, is determined by how much money there is in comparison to goods and services (supply and demand). In most economies it is the job of the federal/national reserve bank to ensure that prices stay stable (ie the relationship of goods and services to how much money there is is stable); as this is necessary for a well running economy.  The federal reserve bank does so by making more (printing, decreasing interest rates) or less (increasing interest rates) available to the economy. To determine how much money needs to be in the economy to keep prices stable is incredibly hard as many factors have an impact: If the reserve bank gets it wrong and there is more money compared to goods and services than previous, prices will rise to compensate; this is inflation If it's the other way round is deflation. Since it is commonly regarded that deflation is much more destabilizing to an economy than inflation the reserve banks tend to err on the side of inflation. "Inflation as defined in the general, has many impacts at a personal level. For example, you say that the reduction in the price of oil has no impact on you.  That's absolutely not true, unless you're a hermit living off of the land.  Every box or can or jar of food you buy off the shelf of the grocery store has the price of oil baked into it, because it had to get there somehow.  High fuel costs for trucks mean increased costs to put food on shelves, which mean increased prices for that food. Even tobacco prices can affect you, because they affect what other people are spending.  Demand is always a significant factor in prices, particularly retail prices, and if people are spending more money on tobacco, they're probably spending less on other things - either buying less snacks, for example, or buying cheaper brands of those snacks.  So the price of Doritos may drop a bit (or not rise), for example. General inflation also tends to drive raises, particularly in industries with relatively small performance ties to raises.  If inflation is 3%, wages need to raise 3% or so in order to keep up, on average; even if your personal cost-of-living went up 0%, or 5%, or 10%, the default wage inflation will be closer to that of the national average.  Any raise less than national average is effectively a pay cut (which is one reason why inflation is needed in a healthy economy).  So your company probably has a cost-of-living raise everyone gets that's a bit less than inflation, and then good performers get a bump up to a bit more than inflation.  You can read more on this topic for a more in-depth explanation. Finally, inflation rates tend to be major factors in stock market movement.  Inflation that is too high, or too low, can lead to higher volatility; inflation that is ""right"" can lead to higher stability.  An economy that has consistently ""right"" inflation (around 2-3% typically) will tend to have more stable stock market in general, and thus more reliable returns from that market.  There are many other factors that lead to stock markets rising and falling, but inflation is one very relevant one, particularly if it's not in the ""right"" zone." I'm not an economics expert or anything, but what seems strange to me is the randomising part. Everything else looks fine but why does it randomly select the next item for price increase, wouldn't this depend on supply/demand and the players in the game? I do appreciate the explanation.  I was being a bit facetious about hotdogs in that I don't buy the SAME hotdog over and over again.    But seriously, I still don't see why rising house prices shouldn't count towards inflation.   100s of thousands of homes are bought per day affecting millions of consumers per day.  The price fluctuations in housing absolutely affect the spending habits of consumers in every other facet of the economy.  Or put another way, what if in some wacky world everyone stopped buying virtually all other items except bare essentials because they were all focused on buying homes.  A huge construction industry boom ensues. Millions are working building homes.  Home prices skyrocket 1000% and become like 80% of GDP.  Is inflation dead? Or has it just shifted to another asset under our typical inflation radar?  Living costs are still very much affected by housing in this scenario.  They're just affected by millions of separate people at once each day.   To say that because one person doesn't repeat buy housing too often, means policy regarding inflation should be ignorant of housing prices, just isn't right.  That they are bought and sold by millions of consumers each month is just as important to the economy as food, energy, or any other major facet of our economy. In any event, inflation might be lagging, but it sure as hell isn't lagging when it comes to housing. Bren's comment is right on the mark.  The typical solution is to divide all bills by 5, and for special items, the person buying it just marks his name that it's not community food.  Your attempt at a granularity level this detailed is admirable, but produces false results. What happens when I claim to be a zero percent milk drinker but when someone gives me cookies, I have a glass of milk?  The effort to get true accuracy will cost far more in time spent than the results are worth. Excellent explanation. Upvote to you sir. I would like to add something:  How do we know how many bushels of apples is worth a chunk of deer meat?   You did not touch on the concept of value.  The way I see it, value is related to the human energy required to procure a specific good.   For example: it takes a man all day to find a nugget of gold, while it take another man all day to pick 20 bushels of apples. Because gold is scarce, it is worth a lot of apples: it has a high value.   At it's core, value is assigned based on the amount of human labor required to acquire a good or service.   For example: Many years ago there may have been an equal number of bears and skunks. However, it would take many brave hunters with bows and arrows to kill a bear, while any hunter could kill a skunk solo. Thus, even though they had the same scarcity, a bear hide would be more valuable because the human labor required was greater.   Many economics classes simply say value depends on supply and demand. However, if something is in low supply and high demand, it is BECAUSE it takes so much human effort to procure. If it did not take large amounts of human labor, everyone would sell said item and the value would drop.   What is your take on this? do you have a better explanation for value? "The setting of interest rates (or ""repurchase rates"") varies from country to country, as well as with the independence of the central bank. There are a number of measurements and indices that central bankers can take into account: This is a limited overview but should give an indication of just how complex tracking inflation is, let alone attempting to control it.  House prices are in the mix but which house or which price? The choice of what to measure faces the difficulty of attempting to find a symmetrical basket which really affects the majority regularly (and not everyone is buying several new houses a year so the majority are ring-fenced from fluctuations in prices at the capital end, but not from the interest-rate end). And this is only when the various agencies (Statistics, Central Bank, Labour, etc.) are independent.  In countries like Venezuela or Argentina, government has taken over release of such data and it is frequently at odds with individual experience. Links for the US: And, for Australia:" That is an assumption that sales would not go down if prices go up.  If you lose even .5% of sales due to an increase of 17 cents, you're not going to cover your $15 wage.  Fast food is an incredibly competitive space, if you don't think 17 cents is significant, go look at how many places still offer a dollar/99 cent menu. according to me it's the news about a particular stock which makes people to buy or sell it mostly thus creates a fluctuation in price . It also dependents on the major stock holder. I am very interested to see what Market Basket's sales look like in another two months. Consumers tend to do their grocery shopping out of habit, and all a competitor (manufacturer or retailer)needs is one chance to show them a better option.  Market Basket has lost many customers for good, but will this story lead to even more new customers? "If you want to make a profit from long term trading (whatever ""long term"" means for you), the best strategy is to let the good performers in your portfolio run, and cull the bad ones.  Of course that strategy is hard to follow, unless you have the perfect foresight to know exactly how long your best performing investments will continue to outperform the market, but markets don't always follow the assumption that perfect information is available to all participants, and hence ""momentum"" has a real-world effect on prices, whether or not some theorists have chosen to ignore it. But a fixed strategy of ""daily rebalancing"" does exactly the opposite of the above - it continuously reduces the holdings of good performers and increases the holdings of bad.  If this type of rebalancing is done more frequently than the constituents of benchmark index are adjusted, it is very likely to underperform the index in the long term. Other issues in a ""real world"" market are the impact of increased dealing costs on smaller parcels of securities, and the buy/sell spreads incurred in the daily rebalancing trades. If the market is up and down 1% on alternate days with no long tern trend, quite likely the fund will be repeatedly buying and selling small parcels of the same stocks to do its daily balancing."