Inflation continued to cool in May, but menu prices remain stubbornly high

The Consumer Price Index experienced a 0.1% increase in May, marking its slowest annual rate increase since March 2021. By comparison, the index rose 0.4% in April and has averaged a 4% increase throughout the past 12 months.

According to data from the Bureau of Labor Statistics released Tuesday morning, the CPI is now 4% higher versus the prior year, marking a material slowdown from the 9.1% increase registered in June 2022. That said, the 4% inflationary rate is still above the Federal Reserve’s 2% target and more interest rate hikes could be implemented to continue working toward that number.

Categorically, the food index rose 0.2 in May, including a 0.1% increase for the food-at-home index, or grocery/retail, and a 0.5% increase for the food-away-from-home index. Restaurant menu prices continue to outpace grocery and retail, as well as the general index; full-service prices increased 0.4% in May and limited-service menu prices increased 0.5%. Year-over-year, food-at-home inflation was up 5.8% in May, while food-away-from-home inflation was up 8.3%, further widening the gap with grocery/retail that began in March. Indeed, March was the first time food-at-home fell since September 2020 and the first time in which food-away-from-home outpaced grocery/retail pricing since late 2021.  

Notably, the food-away-from-home index does remain impacted by the end of free school lunch programs and the National Restaurant Association said this component will continue to distort the overall CPI for restaurant prices until Q4 2023. That said, full-service menu prices remain up 6.8% over last year, and limited-service restaurants are up 8% over last year.

These stubbornly high menu prices may be starting to impact consumer habits. Recent data from Circana, for instance, finds that consumer use of deals at restaurants grew by 8% year-over-year in Q1. Further, April marked the restaurant industry’s weakest performance since July 2022 and its second-softest month of growth in over two years, according to Black Box Intelligence.

And, new data from Revenue Management Solutions finds that QSR traffic decreased by 1.7% year-over-year, while quantity per transaction decreased by 3.7% year-over-year, as consumers reduced their orders to spend less.

Last week, Cracker Barrel reported a 2.3% drop in traffic in its most recent quarter ended April 28, with CEO Sandra Cochran citing weaker consumer sentiment and economic pressures as the culprit. As earnings season ramps back up next month, the inflationary impact will likely become even clearer.

Contact Alicia Kelso at [email protected]