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It doesn't help to judge demands, since A.I. Caravans are moving goods around as well, but its at least a good indicator to know where to get those resources the cheapest. Keep in mind that the amount they got in stock is also relevant for the price.
Not accounting for Raiders and Marauders who raid the village or ambush the caravans wanting to buy stuff.
That's kind of pointless though, as even knowing what a city produces and consumes, an NPC trader may have just visited and bought all their produce or sold them a ton of the goods they consume, which will shift the prices.
What you want to do is focus on the goods which they have a large supply of. If the tooltip for those items shows multiple rumors that you can sell it elsewhere at a profit, you should buy as much of that item as you can afford/carry. Those specific rumors may be outdated and wrong, but they are generally a reliable indication of the prices in the region, so you should be able to find some city nearby where you can sell your goods at a profit.
Conversely, when the rumors for items in your own inventory show multiple locations where you can buy that good cheaper than what the current town is paying, that's the ideal time to sell.
And please ignore the red/green numbers. Those show price changes relative to the average only within the local region, which can be extremely misleading. Trade rumors are far more informative.