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Restaurant menu price inflation is showing little sign of slowing

The cost of a night out continued to grow last month as the gap between restaurants and grocery stores narrowed.
menu price inflation
Restaurant menu prices rose 8.2% year over year in January, higher than the 6.4% growth in consumer prices. / Photograph: Shutterstock.

The price for a restaurant meal continued to increase at a rate faster than overall inflation in January, according to federal data released on Tuesday, as operators kept increasing their charges to offset narrowing profit margins.

Food-away-from-home prices increased 0.6% in January, according to the U.S. Bureau of Labor Statistics. Over the past year, those prices are up 8.2%.

Much of that annual increase is due to the end of free school lunch programs. At full-service restaurants, prices are up 8.2% over the past year. They’re up 6.7% at limited-service restaurants.

Both numbers are higher than overall inflation, which increased 0.5% in January and 6.4% over the past 12 months.

But menu price inflation remains far lower than the price hikes customers are seeing inside grocery stores and other retail food outlets, where inflation was 11.3% in January. Yet there is continued evidence that those prices are moderating. Food-at-home prices rose 0.4% between December and January.

Restaurant executives pay close attention to pricing both at restaurants and grocers, in part because of a belief that too much difference between the two could shift spending from one purveyor of food to consumers to the other. In this instance, soaring grocery prices have been perceived to be a benefit for restaurants, helping keep sales growing despite otherwise historically high increases in the cost of a night out.

That gap was 3.1 percentage points in January, down from 3.5% in December.  

Still, restaurant operators have indicated that inflation is getting better, as they find it easier to staff their stores and food costs show signs of a slowdown following historically high increases over the past year-plus.

That inflation has taken a bite out of profits at the store level. At Burger King, for instance, store-level EBITDA, or earnings before interest, taxes, depreciation and amortization, is down 22% since 2018, parent company Restaurant Brands International said Tuesday.

“The reasons are known to most of you,” RBI Executive Chairman Patrick Doyle told investors. “Recovering from the pandemic, all-time high commodity cost increases, generally high inflation and so on.”

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