Fish Food: The Latest Economic Data Shows CPI at 2.6%

Is the worst behind us?

The headline inflation came in at 2.6% as of October, a slight uptick from 2.4% in September, but still below the 3.0% mark for the 4th consecutive month.

With headline CPI and its major components?– Food, Energy and Shelter?– cooling down, it appears the high-inflation era may be ending, as also evidenced by the Fed’s aggressive rate cuts of 75 basis points in less than three months.

The overall inflation and food inflation are almost down to their pre-pandemic levels; but shelter continues to be elevated, albeit on a downward trend, which, if continued, should give further respite from the overall inflation pressure and reduce the risk of inflation increasing again.

Food Inflation

Within the Food segment, grocery prices have returned close to their pre-pandemic normal (1.1% as of Oct ’24). However, restaurant inflation (3.8% as of Oct ’24) remains elevated. The decrease in restaurant inflation was substantial last year, but this year’s decline has been slower, with only a modest drop since March (from 4.2%). Both full-service (3.7% as of Oct ’24) and limited-service (3.8% as of Oct ’24) inflation have followed a similar trend for the last 1.5 years.

Restaurant Inflation

Drivers

Restaurant inflation tends to show less volatility, and shifts in its trend usually lag behind those of its drivers. Restaurants don’t typically change prices overnight in response to input cost pressures for several reasons:

• They are mostly, especially the bigger chains, less influenced by the periodic fluctuations in the input costs because they often lock in commodity prices for specific periods.
• Commodity price increases can be temporary due to weather related events, supply chain issues etc., which means that the margin hit, if any, may not be significant or prolonged, for which, increasing prices at the risk of value may not be beneficial.
• It behooves the restaurants operators to not reduce price and let the market catch up if they are above the market average. This is why the restaurant price inflation seldom dips below zero, unlike that of the commodity prices.
• Wage increases are scheduled in advance and don’t change abruptly.

This can give the restaurant operators some time to craft a shrewd strategy to increase prices strategically and rationally in locations and on products that have favorable pricing powers and sensitivities and at those points in time that are most suitable to their respective brands.

Outlook

Since the post-pandemic rise in labor and producer prices, restaurants have steadily increased their prices to offset input cost pressures. Historically, the restaurant price trend has been more stable and subdued than those of its two main cost drivers.

Now that both components are cooling off, restaurant inflation is likely to start trending downward. However, like the earlier increases, this decline is expected to be gradual and comparatively less steep. Fishbowl expects the restaurant inflation to finish the year just below 4.0% level, with a slight uptick in Q1 2025 to offset some of the mandated increases in minimum wage either by a set number or by COLA in several states.

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Article by Gaurav Pal, Senior Manager, Menu Pricing and Analytics, Fishbowl

For more information about how Fishbowl works with restaurant groups and brands on pricing and menu optimization, visit our consulting services page at https://www.fishbowl.com/consulting-services.