According to the latest government figures, the consumer price index for food at home increased by 60 basis points year-over-year to 6% versus the 10 basis point gain in food away from home CPI inflation to 2.7%.
Food inflation is now the most important household expense, according to Wal-Mart’s (WMT) commentary during its earnings call last month. Food prices, according to the Bureau of Labor Statistics, continue to accelerate higher. The charts below illustrate food cost trends and food cost trends versus core inflation. It’s worth noting that the spread between food at home inflation and core inflation widened month-over-month while the spread between food away from home and core inflation narrowed.
Grocers like Whole Foods (WFM), where the customer is more loyal and willing to pay higher prices, are reporting no problems passing price through but other concepts where the price elasticity of demand may be higher will likely see more attrition as they look to protect margin. To the extent that grocery inflation continues to outstrip price increases in restaurants, it should be a positive for comparable sales trends at restaurant chains. Whether or not restaurant margins can withstand the pressure or not, however, remains to be seen.
