Real prices lag behind deflation. Short term deflation is really only visible in market/financial metrics/prices. But your other point is probably more correct

Real prices lag behind deflation. Short term deflation is really only visible in market/financial metrics/prices. But your other point is probably more correct - supply/demand swings in the short term affect the prices you see more than deflation/inflation. Technically a gallon of milk should go up in price like 6-10 cents a year, which you might not notice.