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Menu prices continues to cool in July, but the gap continues to widen in favor of grocery prices.

Menu prices continued to cool down in July

Despite continued relief, the gap between restaurant prices and grocery prices continued to widen in favor of grocery.

 The Consumer Price Index rose 0.2% in July on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported Thursday morning. The annual inflation rate increased to 3.2%, versus June’s 3%, and the 3.3% expected.

The food index increased 0.2% in July after increasing 0.1% the previous month. The index for food-at-home increased 0.3% over the month after an unchanged June, a nominal 0.1% increase in May and declines in both March and April. Year-over-year, food-at-home prices are up 3.6%. Of note, four of the six major grocery store food group indexes increased in July, including meats, poultry, fish and eggs. The index for beef was up 2.4%.

The food-away-from-home index increased by 7.1% on an annual basis after ticking up by 0.2% in July. That 0.2% is the lowest increase in the food-away-from-home category this year. Food-away-from-home was up 0.6% in January, February and March; 0.4% in April; 0.5% in May; and 0.4% in June.

Broken down, the index for full-service meals and the index for limited-service meals both increased 0.2% over the month. The index for full-service meals rose 5.8% over the last 12 months, and the index for limited-service meals was up 7.1% over the same period. This is compared to June, in which the index for full-service meals rose 0.3% and limited-service meals increased 0.4%, while food-away-from-home prices were up 7.7%. And, in May, food-away-from-home prices were up 8.3%, including 8% at limited-service restaurants and 6.8% at full-service concepts.

Despite this continued cooling, however, July marks the fifth month in a row in which restaurant prices have outpaced grocery prices. According to Mark Kalinowski, the gap between the two categories continued to widen and is now a 350 basis-point differential. It was a 300-point gap in June and 250 in May.

“We would note that the 20-year historical average is a 60-basis-point gap, so July is the fourth month in well over a year in which the gap is in favor of grocery stores, and simultaneously, larger than the 20-year historical average gap,” Kalinowski wrote in a note Thursday.

Citing this widening gap as one factor, he doesn’t expect second half 2023 restaurant same-store sales to be as strong as they’ve been in the first half.

Contact Alicia Kelso at [email protected] 

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