Inflation Stings Restaurants Even as Consumer Prices Appear Tame

Tuesday, 19 Aug 2014 08:21 AM

By Dan Weil

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While many economists say inflation isn't a problem now, try telling that to restaurant chains.

Consumer prices rose 2.1 percent in the 12 months through June. And the Federal Reserve's favored inflation gauge, the personal consumption expenditures price index, gained only 1.6 percent during that period. That's below the Fed's target of 2 percent.

But Red Robin Gourmet Burgers reported Thursday that its profit margin dropped 1.3 percent in the latest quarter thanks to higher food and beverage costs, according to CNBC.com.

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And Noodles & Co. said its profit margin fell 2 percent in the second quarter because of increased costs. Many other food retailers are saying the same thing.

"Inflation remains a key concern for management," Goldman Sachs strategist David Kostin wrote last week in a research note obtained by CNBC.com.

"Companies [have] noted the potential long-term impact of rising costs on margins despite hedges that reduce the near-term impact on profits."

Wholesale food prices climbed 0.4 percent in July from June and 3.7 percent in the 12 months through July.

Laura Rosner, U.S. economist with BNP Paribas, is one who isn't worried about inflation.

"The economy and the recovery remain on track, neither too hot nor too cold," she told Bloomberg, commenting on the latest consumer price figures.

The Fed "can continue with accommodative policy," she said.

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