Menu price inflation catches up with the grocery store

Menu price inflation has finally caught up with supermarket inflation.

Prices at restaurants, workplace cafeterias and school lunch programs increased 0.6% last month, and 8.8% on an annual basis, the U.S. Bureau of Labor Statistics said on Wednesday, as foodservice inflation remains elevated even as operators report easing prices for labor and food.

Retail food prices, meanwhile, fell 0.3% last month and were up 8.4% year over year. It was the first time menu price inflation exceeded retail price inflation on an annual basis since September 2021.

The inflation gap between the two major purveyors of food to consumers, which was 5.5 percentage points last August, has been narrowing for months as easing food costs have prompted retailers to ease up on prices.

Restaurants, however, have continued to push their prices higher. While at least some of the 8.8% is due to the end of free school lunch programs that caused those indexes to soar, inflation remains historically high at traditional restaurants.

Prices at full-service restaurants rose 0.7% last month, up 8% on an annual basis.

At limited-service restaurants, prices increased 0.5% monthly and 7.9% year over year. In both instances, restaurants have been raising prices at a steady clip for much of the past two years.  

Restaurants have been raising prices because of historically high inflation for both food and labor costs. Retailers’ prices were increasing largely because of commodity inflation, which comprises the bulk of their costs. As food prices have eased, retail prices have come down, while restaurants have continued to raise them.

The drop in grocery store prices could become a pressure point for industry sales this year if consumers perceive restaurants as a worse value.

The gap in pricing last year was considered something of a backstop for restaurant sales at a time when operators hiked prices far more than normal. Now that gap is gone.

The overall inflation rate increased 0.1% in March.