Price Volatility in any market is a measure of the rate and magnitude of change in a specific market's prices over time. Price volatility basically refers to the day-to-day fluctuations in the price of a specific basket of goods over a short period. The level of volatility, however, refers to the extent of differences in prices over a given time frame. Therefore, high levels of volatility represent extreme characteristics of demand and/or supply.
High levels of price volatility are indicative of extreme weather conditions that affect global markets. Extreme weather conditions in the form of typhoons, earthquakes, floods, drought, snow storms and wildfire can cause drastic changes in global markets. The sudden rise and fall in global energy prices is an example of extreme weather conditions and the resulting price volatility that these conditions induce. Similarly, global commodity prices that are affected by extreme weather conditions on one hand and electronic commerce and internet related activities on the other can also be examples of extreme weather conditions.
Short-term price fluctuations are normally caused by the introduction of new products or services into the market. Short-term price volatility in the residential customers' energy consumption usually occurs during the installation or qualification of new appliances or heating systems. Installing efficient and effective heating systems reduces energy consumption through the cold winter months. Likewise, residential customers who regularly use computer systems, such as those using the internet, can also experience short-term increases in their internet charges as well.