The Changing Inflation Landscape

The inflation gap between grocery prices and restaurant menu prices has narrowed significantly. New data shows a 180 basis point difference, the smallest since April 2023. This shift highlights the evolving impact of inflation on consumer spending habits.

December Price Changes

Both grocery and restaurant prices experienced modest increases in December 2024, further reducing the inflation gap:

• Restaurant menu prices increased by 0.3%, continuing the steady inflation pace seen over the past year.
• Grocery store prices (food at home) also rose by 0.3%, marking a 1.8% increase on a year-over-year basis.

Impact of the Inflation Gap

Historically, a larger inflation gap between groceries and restaurants has pushed consumers toward grocery shopping over dining out. In 2023 and 2024, when the gap exceeded 300 basis points, restaurant traffic declined. Fast-food chains like McDonald’s saw decreased customer visits as inflation drove consumers to save money by cooking at home.

Restaurant Price Increases

Restaurant prices surged post-pandemic due to labor shortages and rising food costs. However, the pace of these increases has slowed:

• Limited-service restaurants (e.g., fast food) raised prices by 0.4% in December, totaling a 3.7% increase for the year.
• Full-service restaurants saw a 0.3% rise in December, with an overall 3.6% increase for the year.

General Inflation Trends

The Consumer Price Index (CPI) rose by 2.9% over the past year, indicating a gradual moderation of inflation. As food prices stabilize, consumers are carefully balancing between eating out and preparing meals at home.

Final Thoughts

The narrowing inflation gap between groceries and restaurants reflects shifting consumer behavior, with shoppers more carefully balancing between eating out and cooking at home. The moderating inflation in both sectors is also a sign of stabilizing cost pressures in the economy.

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