CPI Hotter than Egg-spected

The most astonishing number on the January CPI report was the 53% jump in egg prices versus year. With bird flu decimating the supply chain, the political hot-button appeared far from contained & helped to drive Food at Home (grocery) higher. With 4 consecutive months of CPI growth, it is increasingly hard to make an argument that inflation is tamed. The current trend, combined with tariffs makes hitting the Fed’s 2% target in 2025 very unlikely. This decreases the odds of a Fed rate cut and reintroduces the question of whether inflation can be tamed without economic contraction.

Restaurant inflation bucked the trend with a tick down to 3.4% (from 3.6% in December). The drop in Restaurant inflation is being driven by the consumer revolt, which has put a big dent in overall restaurant visits over the past 2 years. In 2023 the sector saw significant attrition in the lowest income consumer groups. In ’24 the drop was broader based with a faster deterioration of visits from higher income groups and a stabilization of low-income consumers. This reversion to a historically normal “mix of visits” doesn’t represent a growth in low-income visits, but it does indicate that the most price sensitive consumers are shopping for value.

Comparing cumulative CPI growth to Spend per Transaction reveals how consumers handle rising prices. In late 2022, Spend per Transaction growth slowed compared to restaurant CPI, just before the significant drop in low-income customer traffic in 2023. When restaurant prices get too far ahead of the consumer, they adjust their spending. Check-management is a leading indicator of store-level price resistance and when managed can be used to manage price changes surgically before it turns into lost customers.

Read the original post and subscribe for updates here.