Restaurants, other services still in grip of high inflation

While prices for most goods have been falling throughout the year, inflation for a wide range of services remains high. That has put a strain on consumers eating out, servicing their cars and paying for various kinds of insurance.

Prices for services rose 3.7% in September from a year ago, according to the personal consumption expenditures price index, the inflation gauge of choice for the Federal Reserve. Prices for goods, though, have been falling, which has helped cool the overall rate of inflation nearly back to the Fed’s goal of 2%.

Restaurants, with traditionally tight margins and tough competition for diners’ dollars, are among the harder hit sectors dealing with stubborn inflation. Food services inflation rose 3.6% in September. Chains including Chipotle, McDonald’s and others say they expect inflation pressure from wages to continue.

Higher wages drive up costs for restaurants, often prompting menu prices to also rise. Pressure from rising wages increased following mandatory increases in minimum wages in California.

McDonald’s and other restaurants have tried to attract more cautious consumers with menu deals as the price of eating out rises compared with eating at home.

Home and car insurance inflation also remains stubbornly high. Household insurance premiums were up 10.1% from a year ago, while auto insurance was up 6%. Companies including Allstate and Progressive have said increased storm damage and more costly parts and labor for repairs are keeping prices high.

The housing market, particularly rent, has been one of the biggest drivers of services inflation. Overall housing costs rose 5.1% in September from a year ago. The travel sector is also facing sticky inflation. Air transportation costs rose 4.1% in September.

Prices for goods fell 1.2% in September and have been easing or cooling since late 2023, but pressure remains for food companies. Many of those companies are hesitant to pass along more price increases to consumers as people become more cautious about spending.

Overall, food and beverage prices rose 1.2% in September, with particularly big increases for items including milk, eggs and oils. Kraft-Heinz recently warned investors that inflation for things like coffee and dairy products will weigh on its margins and operating income for the year.