Retail Food Inflation Surpasses Restaurant Menu Price Increases for Second Time in Three Months

In a notable shift, retail food inflation has outpaced restaurant menu price increases for the second time in three months, signaling a new trend in consumer pricing dynamics. According to federal data released Wednesday, prices for food consumed at home rose by 0.5% in November, while food away from home, or restaurant prices, saw a more modest 0.3% increase.

The annual comparison highlights this narrowing gap: restaurant menu prices have risen 3.6% over the past year, while retail food prices, including those at grocers and liquor stores, have increased by 1.6%. This 2 percentage-point difference marks the smallest gap since May 2023, underscoring a normalization in restaurant price inflation after two years of steep increases.

Inflation Trends: Restaurants vs. Grocery Stores

Restaurants are now experiencing a more stable rate of inflation. For the past five months, food away from home prices have risen consistently by 0.2% to 0.3%. Limited-service restaurant prices are up 3.7% over the past year, closely followed by full-service restaurants at 3.6%. Schools and employee dining sites saw a 3.5% increase, while vending machines posted the lowest inflation at just 0.5%.

Conversely, grocery stores are seeing mixed trends. Prices have decreased for items like canned and frozen fruits, vegetables, fish, seafood, and bakery products. However, prices for beef and pork chops rose by 5%, while eggs saw the steepest inflation, jumping a staggering 37.5% over the past year, including an 8.2% increase in November alone. The ongoing bird flu outbreak has significantly impacted egg supplies, driving up costs.

Consumer Impact and Market Response

The easing of restaurant menu inflation comes as the industry recovers from soaring prices that had alienated lower-income consumers and led to declining traffic, particularly at fast-food chains. In response, chains like McDonald’s, Burger King, and Wendy’s have initiated a value war, focusing on discounted offerings to attract customers. McDonald’s, for instance, is rolling out a McValue menu with promotions like $1 item pairings and app-exclusive deals. Convenience stores such as 7-Eleven are also joining the fray with competitive discounts.

Overall, inflation rose 0.3% in November, bringing the total annual increase to 2.7%. While restaurant prices stabilize, retail food inflation and fluctuating grocery trends could shape consumer behavior heading into the new year.