Headline CPI Ticks Up & Restaurant CPI Continues Lower

October Restaurant CPI continued its trend lower at 3.8% versus 3.9% in September, with Limited Service dropping below 4% to 3.8%, the lowest level since May 2020. Food at Home also dropped back down to 1.1% after successive ticks up since August. Despite the slight tick up in headline CPI, the consensus probability of another 25pt Fed Funds rate cut in December rose to 80% (from 60% before the report).

Despite the Fed’s rate cuts, consumer borrowing costs are not following suit. 30 year Mortgages have moved higher in November indicating that despite Fed rate cuts, the bond markets anticipate higher borrowing costs over the longer term. This is largely driven by expected changes in policy from the incoming administration, factoring expected growth but also increased deficits and higher inflation from tariffs and labor pool pressure. The promised immigration crackdown is likely to hit the food industry disproportionately to others as workers for food supply chain & restaurant workers become more scarce.

Looking back at the cumulative price increases in Food Away From home as reported by CPI and comparing that to growth in average purchases per transaction (check average), we see that prices have increase by almost 4pts more than average restaurant check. While the two are highly correlated (of course), average spend started tracking significantly lower than price increases starting in 2023 – indicating significant basket management. Basket management is a leading indicator of decreased customer visits.