NEW YORK - Dining out will cost more this year as restaurants take advantage of the nearly two-year long expansion to boost prices on food and drinks.
Higher-priced menus reflect growing confidence by eateries that consumers can afford to pay more to eat out. Restaurants are emboldened in part by the success of U.S. airlines, which have raised fares almost 10 percent since a year ago, according to Dean Maki, chief U.S. economist at Barclays Capital in New York.
"The fact that the airline industry was able to pass along cost increases signals that the pricing environment has become somewhat more favorable than it was during the heart of the recession," Maki said. "It's more likely restaurants will be able to pass along price increases now relative to the last few years."
Higher food and fuel costs are spurring menu changes, which are reflected in the food-services category of the personal- consumption-expenditures price index. Purchased meals and beverages, which make up about 6 percent of core PCE, rose nearly 2 percent in March from a year ago, the biggest increase since November 2009, according to data from the Bureau of Economic Analysis in Washington.
Several apparel companies - including San Francisco-based Levi Strauss & Co., which supplies jeans to retailers in more than 110 countries - also have announced increases to offset higher costs for cotton, foreign wages and freight. With imported-clothing prices rising at the fastest rate in at least a decade, retailers stand a better chance of exerting pricing power, Maki said.
All this is putting pressure on the Federal Reserve to prevent inflation from getting out of hand, said Samer Nsouli, chief investment officer in New York for the Lyford Group Macro Fund.
"Inflation hawks see restaurants and airlines passing through higher prices and say the Fed's behind the curve," Nsouli said. "The Fed's not paying enough attention to such trends when it comes to its continued accommodative monetary policy."
Fed Chairman Ben Bernanke and his chief deputies on the FOMC - Fed Vice Chairman Janet Yellen and New York Fed President William Dudley - have said in recent speeches that the committee's leadership believes the threat from accelerating prices will prove "transitory." Even so, policy makers have been bumping up their forecast for 2011 core inflation, which excludes food and fuel. The April projection is about 1.5 percent, compared with about 1.2 percent in January.
Restaurants have projected menu increases of 1.8 percent during the next six months, the most in a year, according to research by RBC Capital Markets. The amount depends on the type of food they serve, said Larry Miller, an RBC analyst in Atlanta. In the same period, the companies are forecasting a rise of at least 3.2 percent in their commodity costs, the research showed.