Restaurant CPI Drops Below 5% for First Time Since June ‘21

Headline CPI disappointed with a higher-than-expected result at 3.2%, but Restaurant CPI dropped below 5%. Although still running historically high, the drop is significant and perhaps not surprising after McD’s announcement that it will change pricing strategy to regain lower income customers. While limited-service is still above 5%, it is the lowest since August 2020, when prices began to spike mid-pandemic, drive-thru traffic spiked, menus were reduced and value-menus eliminated. Meanwhile, Food at Home continued to slide – dropping to its lowest level in almost 3 years.

Soft vs Hard Landing

I was vocal, and incorrect that inflation could only be tamed through an impending recession. By my estimation the entire economy should have hit the skids last fall, but it proved resilient. The restaurant industry, however, has not been trending as well as the broader economy.  The lowest income consumers are the most impacted by higher interest rates, as credit card balances and delinquencies spiked & higher restaurant prices pushed many to ‘at home’ eating occasions. While the psychological impact of prices that have spiked 30% in recent consumer memory is raw & inflation fatigue is very real, interest rates are currently a bigger threat to the economy than inflation continuing to linger around 3%. If the malaise we’re seeing with the lowest income consumers spreads, then there’s still time for the landing to get pretty bumpy.

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