Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / How Inflation Is Quietly Eating Your Dining Out Budget
Transcript
- Lucas: Luna, I want to run something by you. You know how the latest CPI data — for May — came in at 334.0, up from 332.41. That's about a 0.5% monthly increase. But the number I keep coming back to is food away from home. It's up 4.2% year-over-year. Luna: That's more than grocery inflation, right? I feel like I'm seeing it every time I go out. Even a simple lunch seems to cost a couple bucks more than it did a year ago. Lucas: Exactly. Grocery prices are up around 1.8% year-over-year. So restaurants are outpacing supermarkets by a wide margin. And it's not just the higher-end places. Fast food, casual dining — the whole spectrum. Luna: Before we dig in — I just want to say, if this conversation helps you think about your own spending, and you find value in these episodes, honestly, if today was worth a coffee to you, you can support the show at buy me a coffee dot com slash fexingo. It keeps us ad-free and independent. Lucas: Yeah, it's a small thing that makes a big difference for us. And we appreciate it. Luna: Alright, back to the restaurant inflation. So why are restaurant prices rising so much faster? Lucas: Two main drivers: labor and rent. Restaurants are labor-intensive. With the unemployment rate low and wages rising — especially in leisure and hospitality — those costs get passed on. And commercial rents have been sticky. Even as some office space softens, retail and restaurant space hasn't gotten cheaper. Luna: So it's a cost-push thing. But is demand keeping up? I mean, if people start eating at home more, wouldn't that force restaurants to compete on price? Lucas: That's the interesting part. Demand has actually held up pretty well. But we are seeing some 'trading down' — people who used to go to a sit-down restaurant might now go to fast-casual, or fast-casual to fast food. And that's putting pressure on the higher-end chains. Luna: I read that Darden Restaurants — they own Olive Garden, LongHorn Steakhouse — they've been raising prices about 3% to 4% annually. But they're also rolling out more value menus to keep traffic up. Lucas: Right. And McDonald's has been in the news for that too. They've had to balance their dollar-menu strategy with higher input costs. Their same-store sales have been positive, but margins are squeezed. The key metric is whether they can hold onto customers as prices creep up. Luna: What about the breakeven inflation rate? I see it's at 2.24% now. Does that tell us anything about where restaurant prices might go? Lucas: It does. The 10-year breakeven — that's the difference between nominal Treasury yields and TIPS yields — reflects market expectations for average inflation over the next decade. At 2.24%, it's above the Fed's 2% target but not alarmingly so. It suggests the market thinks inflation will moderate but stay slightly elevated. That's consistent with restaurant prices rising 3% to 4% a year, not 6%. Luna: So we're not looking at runaway restaurant inflation. But for households on a tight budget, an extra 50 cents or a dollar per meal adds up. Lucas: Absolutely. If you eat out twice a week, an extra dollar per meal is over a hundred dollars a year. And for lower-income households, that's a real hit. The CPI data shows that food away from home has been rising faster than overall inflation for about two years now. Luna: What about delivery apps? Do they amplify the inflation? Because the menu price is already higher, then you add service fees, delivery fees, tips... Lucas: They do. Studies have shown that ordering through DoorDash or Uber Eats can cost 30% to 40% more than dining in. And the restaurants themselves often raise menu prices on the apps to cover the commission. So if you're trying to beat inflation, cooking at home or picking up directly can save a lot. Luna: That's a practical tip. So what's your takeaway for listeners? Should they expect restaurant inflation to cool down anytime soon? Lucas: I think it will moderate, but not disappear. As long as labor costs stay elevated and commercial rents don't fall, restaurants will keep raising prices. But competition will keep a lid on it — if one chain raises prices too much, customers will go elsewhere. So we're probably looking at 3% to 4% annual increases for the next year or two. Luna: That's manageable if you plan for it. But it's another reminder that inflation isn't just a headline number — it shows up in your daily choices. Lucas: Exactly. And that's the quiet part. It's not dramatic, but it changes behavior over time. More home cooking, more meal prep, more value-conscious decisions. And that's not a bad thing — it can be healthier and cheaper. Luna: Alright, so next time you see your restaurant tab, you'll know why. Thanks, Lucas. Lucas: Thanks, Luna. Stay savvy out there.