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Inflation hits 8.5% for year ending in March

Grocery prices climb at higher rate than restaurants, but can menu prices rise even more?

Consumer prices have climbed 8.5% for the year ending in March — the largest 12-month increase since 1981 — with rising gas prices largely to blame, the Bureau of Labor Statistics reported Tuesday.

Food inflation, however, was a significant contributor. In March alone, consumer prices for food at home increased 1.5%, while prices for food away from home rose 0.3%.

Grocery inflation has outpaced rising prices in restaurants for the sixth consecutive month and the gap in March was the widest since 2011, according to a report from David Tarantino of Baird Equity Research, who argued that higher grocery prices should provide restaurants some “cover” to raise menu prices on a near-term basis to address their input cost inflation.

Restaurants and retailers face similar pressures as they weigh price increases, including supply chain challenges, higher wages and energy costs.

Year-over-year inflation in grocery stores increased 10% in March (up from 8.6% in February and 7.4% in January), outpacing restaurant inflation, which increased 6.9% for the period ending in March (up 6.8% in February and 6.4% in January). 

For restaurants, the 6.9% year-over-year increase in March was the highest since the year ending in December 1981.

For the first quarter, grocery inflation averaged about 8.7%, Tarantino said, or 200 basis points above restaurant inflation of 6.7%. Looking back even further, the report said restaurant inflation has increased 11.7% since 2019, which is below the 15.2% increase in cumulative grocery prices.

For full-service restaurants, inflation was 0.7% for March, while in limited-service restaurants, inflation actually declined 0.2%, which was the first decrease since October 2018, according to the BLS.

Fundamentally, energy costs remain a key pain point, exacerbated by the war in Ukraine. In March, gas prices rose 18.3% and accounted for more than half of the increase for all items in the BLS report. 

For the 12-months ending in March, oil prices have climbed 70% and the price of gas is up 48%.

As a result, restaurants will continue to face higher supply chain costs and food inflation will likely continue, said consultant Dan Varroney, president and CEO of Potomac Core and author of “Reimagining Industry Growth.”

“The cost of energy has got a lot to do with what we’re seeing, both with food at home and food away from home,” Varroney said. Wages are not keeping pace with inflation, and consumers will be faced with a choice:

“Consumers are saying, ‘I need to fill up my car with gas,’” he said. “And ‘I need to feed my family. Do I go to a sit-down restaurant, quick service, or do I eat at home?’”

Consumers are going to go where their dollar goes furthest, he said. “Because of inflation being where it is, I think restaurants will be severely restrained from increasing prices further. They’ll more likely look at modifying menus.”

Varroney expects to see inflation continue to climb through the end of the year. “I do not see inflation abating significantly before the end of the year,” he said. “And we could be looking at a retraction of the economy, maybe in the third or fourth quarter.”

Some chains are tapping into the pain consumers are feeling at the pumps.

Krispy Kreme this week lowered its PPOG, or “price per original glaze,” for a dozen doughnuts to the national average price for one gallon of regular gas on Wednesdays. This week, for example, a dozen doughnuts is expected to be $4.11 at participating stores. Typically, a dozen doughnuts at Krispy Kreme varies by location but is upwards of about $10 nationwide.

Contact Lisa Jennings at [email protected]

Follow her on Twitter: @livetodineout


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