Financing

Fast-food menu price inflation is accelerating as deflation hits grocers

Prices at limited-service restaurants accelerated last month while grocery store prices declined, according to new federal data.
fast food prices
Prices at fast-food chains appear to be accelerating again. | Photo: Shutterstock.

Inflation at fast-food restaurants accelerated last month, even as prices at grocery stores declined, according to new federal data released on Wednesday.

Prices at limited-service restaurants increased 0.4% in April, slightly higher than the 0.3% increase in March but continuing a pattern of acceleration—fast-food prices increased 0.1% in February.

Over the past year, fast-food prices increased 4.8% in April, which was a modest deceleration compared with March. Still, the monthly inflation numbers suggest that limited-service restaurants are raising prices more aggressively again, potentially influenced by labor cost increases in California.

Prices have also been accelerating at full-service restaurants, increasing 0.3% in April after rising 0.2% the previous month. For the year, full-service restaurants have raised prices 3.4%.

Overall, prices for food away from home, which includes food served at schools, hospitals and other venues in addition to restaurants, increased 0.3% last month and 4.1% over the past year.

But the increase in prices is coming as grocers are decreasing prices. Food-at-home prices decreased 0.2% last month and are up just 1.1% over the past year.

That gap may be accentuating concerns about restaurant value throughout the industry, keeping people from dining out more often. Industry traffic has declined starting out the year, challenges experienced at a broad array of restaurant chains, from McDonald’s to Olive Garden.

That traffic issue is also forcing more chains to shift their marketing strategy to focus more on value and price points. McDonald’s has shifted toward more value-oriented marketing, including a $5 national meal offer that largely matches offers from rivals like Wendy’s and Taco Bell.

But concerns about traffic are also running into continued cost inflation, particularly over labor.

California, which represents about 15% of the U.S. restaurant industry, in April started requiring fast food chain restaurants in the state to pay $20 an hour, a requirement that immediately increased wage rates for those locations by 25%.

Many limited-service restaurants, including McDonald’s operators, Subway franchisees and chains like Chipotle Mexican Grill, have increased their prices accordingly.

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