Consumers who frequent restaurants are finding higher prices these days as operators charge more for their menu items in a bid to offset rising labor costs.
Menu prices, or the prices of out-of-home food, rose 0.6% between April and May, according to the latest data from the US Department of Labor’s Consumer Price Index.
Prices in restaurants are up 4% on an annual basis.
The menu price inflation rate was lower than the overall inflation rate, which was 5% last month on an annual basis. This is the largest 12-month increase since August 2008.
Menu prices have risen since last summer, when consumers started flocking to drive-thru fast food outlets and ordering deliveries and operators paid higher prices for labor and billed consumers accordingly.
But for most of that time, it was the limited service sector that led the charge, as demand for these meals and consumers’ willingness to pay for them drove higher fees.
Still, prices at full-service restaurants rose 4.1% per year in May, according to the Labor Department, which said it was the highest annual growth rate for the industry since October. 2018.
Figures suggest full-service restaurants are increasing their prices as operators face higher labor costs as they fill vacancies to meet growing demand. Sales at full-service restaurants have rebounded significantly in the past three months, as consumers with cash to spend filling seats at independent restaurants and casual dining concepts.
That said, fast food restaurants continue to drive up prices. Limited-service restaurants increased their prices 6.1% in the past year.
Annual menu price inflation, full service vs limited service
Source: United States Bureau of Labor Statistics
Labor is largely responsible for the rise in prices. About a third of restaurant income is spent on salaries and benefits, making them more aggressive in their price hikes when wages rise.
“It looks like the industry is going to have to react,” Chipotle CFO Jack Hartung told investors this week after the company admitted it had recently raised prices by 4% to pay higher labor costs. “It looks like the industry is now going to have to do something similar or catch up. Otherwise, you will simply lose the endowment game.
At the same time, it’s not just work. Restaurants are facing shortages of certain supplies for everything from chicken to sauces, which in some cases results in higher prices.
Some of the other inflationary sectors could also put pressure on industry prices in the near future, notably energy, which could lead to higher prices for raw materials and utilities. The energy index has risen 28.5% in the past 12 months. The price of gas has increased 56.2% over the past year.