Menu Prices

Consumer prices edged up 0.1% in July, rebounding modestly after declining 0.4% in June. Lower gasoline prices helped moderate inflation pressures for consumers for the second consecutive month. Even so, gasoline prices remained 24.6% higher than a year ago, reflecting the effects of the conflict with Iran and disruptions to shipping through the Strait of Hormuz. Meanwhile, food prices also rose 0.1% in July, their slowest pace since March. However, menu prices continued to increase at a solid rate, up 0.3% for the month.

Headline inflation eased from 3.5% year-over-year in June to 3.4% in July. Core CPI, which excludes food and energy, was unchanged in July after rising 0.2% in June. On a 12-month basis, core inflation slowed from 2.6% in June to 2.5% in July, its lowest rate since February. Price increases in July were led by medical care services (+0.6%), used cars and trucks (+0.4%), and transportation services (+0.3%), while medical care commodity prices declined 0.6%.

The moderation in inflation during June and July is certainly welcome, particularly after inflation moved in the wrong direction earlier this year. However, much of the recent improvement has been driven by lower energy costs. With tensions in the Middle East still unresolved, gasoline prices could move higher again in August.

As a result, the Federal Reserve is likely to remain focused on inflation pressures that continue to exceed its long-term target. While the Federal Open Market Committee is expected to keep monetary policy unchanged in the near term, the prospects for interest rate cuts later this year could diminish if inflation fails to make more meaningful progress toward the Fed's goal.
 

Menu prices continued to increase solidly 

Menu prices increased 0.3% in July, which was also the average monthly rate year to date. On a year-over-year basis, menu prices were 3.4% higher than in July 2025, the same pace as in June, with both being the slowest annual increases since January 2025. While restaurant inflation remains elevated by historical standards, it has continued to moderate and remains well below post-pandemic peaks.

Grocery prices edged down 0.1% in July, providing some relief after faster growth earlier in the year. Much like menu prices, food-at-home prices have risen 0.3% per month on average during the first seven months of 2026. Over the past 12 months, grocery prices have advanced 2.7%.

For the restaurant industry, a notable development has been the narrowing gap between grocery and menu price inflation. While dining out remains more inflationary than eating at home, the difference has shrunk considerably so far this year. That trend could help support restaurant demand, as the relative cost advantage of purchasing food from grocery stores has become less pronounced, potentially making consumers more willing to spend on away-from-home meals.

In the food away from home category, menu prices at limited-service restaurants rose 0.4% in July, rebounding after the 0.1% gain seen in June. Through the first seven months of this year, limited-service menu prices have averaged 0.3% growth per month. Meanwhile, menu prices at fullservice establishments rose 0.2% in July, slowing from growth of 0.3% in May and 0.4% in June. with an average month growth of 0.2% year to date. On a year-on-year basis, fullservice restaurant menu prices grew 3.4% since June 2025, with 3.3% growth year-on-year for limited-service businesses.

Within the broader food-away-from-home category, prices at employee sites and schools rose 0.5% in July, extending the robust 0.9% gain seen in June. At the same time, prices for food from vending machines and mobile vendors increased 0.3% in July, rebounding from the 0.1% decline experienced in June. Menu prices for other food away from home jumped 0.8% in July, the fastest monthly rate in 11 months.  

Year-over-year, prices at employee sites and schools rose 1.6% since July 2025, with prices at vending and mobile vendors up 2.6%. The broader “other food away from home” category posted a 5.2% annual increase in prices in July year-over-year, the strongest since January.       

Regionally, menu prices grew 0.4% in the Northeast and the South, with 0.3% growth in the West and 0.1% in the Midwest. On a year-over-year basis, restaurants in the Midwest had the fastest menu price growth at 3.7%, followed by year-over-year gains of 3.4% in the Northeast, 3.4% in the South, and 3.1% in the West.