Following several earnings reports of traffic erosion from lower-income consumers, including from McDonald’s, restaurant prices finally started to show signs of cooling in February.

The Consumer Price Index for February shows that inflation overall increased 0.4% during the month, up slightly from 0.3% in January. According to the U.S. Bureau of Labor Statistics’ CPI report, released Tuesday, the inflation index increased 3.2%, compared to a 3.1% increase in January.

One silver lining from the report is that the food index remained unchanged in February, with food-at-home prices flat and food-away-from-home prices up 0.1%. The food-away-from-home index – counting both limited-service and full-service restaurant prices – was the lowest it’s been in about two years. In January, food-away-from-home prices were up 0.5%, while in the previous months they were up 0.3% and 0.4%, respectively.

Overall, food-away-from-home prices are up 4.5% year-over-year, compared to 1% for food-at-home (supermarket/grocery stores). Full-service prices are 3.8% higher versus 2023, while the quick-service category is up 5.2%.

Menu price increases have generated plenty of social media attention from fatigued consumers, who have also pulled back on visits throughout the past several months. Those consumers have likely turned their spending to food-at-home, which has generated lower inflationary levels for 12 straight months.

That said, according to Kalinowski Equity Research, the gap between grocery/supermarket inflation and restaurant inflation shrunk in February and is not expected to widen any more this year. Still, the February gap is much larger than the historical average by about 300 basis points. CEO/President Mark Kalinowski expects full-year same-store sales growth to be slower than 2023 numbers for that reason.

Also, while February’s numbers show welcome signs of menu price cooling, it may be short lived in some markets. California’s AB 1228 law, raising the minimum wage at quick-service restaurants to $20 an hour, goes into effect April 1 and several brands have noted they will raise prices to manage those higher labor costs. Chipotle CFO Jack Hartung said there could be up to 100 basis points added to menu pricing to brace for the impact of California, which represents about 15% of the chain’s system. Shake Shack and McDonald’s have also noted they plan to take additional menu pricing in California to offset added labor pressures.

Contact Alicia Kelso at [email protected]