Decomposing Cyclical Grocery Prices: Store and Household Responses

We study how grocery prices paid by households respond to local economic conditions, using the 2014 oil price collapse as a regional unemployment shock in Norway and combining transaction histories for 100,000 households with weekly store-level price data. We derive an exact decomposition of the change in the average price a household pays, whose components, assigned to retailer pricing or distinct household behaviors, sum to the total causal effect when estimated by regression. Prices paid are procyclical: retailer price responses account for about ten percent of the decline, while the dominant channel — over half the total effect — is households timing purchases to temporary sales. The dominance of within-quarter timing implies that unit-value price indexes conflate retailer pricing with household behavior, increasingly so in downturns.