Won't food prices rise again soon? Many companies say yes.

Few prices are as visible to Americans as the prices they encounter at the grocery store or at a drive-through window. That's why two years of rapid food inflation have been a major drag for American households and the Biden administration.

Shoppers have been slow to regain confidence in the state of the economy as they pay more to fill their carts, and President Biden has made a habit of shaming food companies — even filming one Super Bowl Sunday video criticizing snack food manufacturers for their 'rip-off' prices.

But now the trend in grocery and restaurant inflation appears to be about to change.

After months of rapid increase, the costs of food at home rose significantly more slowly in January. And from packaged food suppliers to restaurant chains, companies across the food sector are reporting that they are no longer raising prices as much. In some cases, this is because consumers are finally resisting price increases after years of spending money on them. In other cases, this is because the prices that companies pay for raw materials such as packaging and labor are no longer rising as much.

Even if food inflation decreases, it doesn't mean your grocery bill or restaurant check will get smaller: it just means it won't increase as quickly anymore. Most companies plan smaller price increases rather than outright price cuts. But when it comes to whether the rapid increases in grocery and restaurant prices are behind us, executives' statements to investors offer some reason for hope.

Some, but not all, consumers say no.

Executives have discovered in recent months that they can only raise prices so high before consumers cut back.

Soft drink and snack maker PepsiCo had raised prices double digit percentages seven quarters in a row, and although that streak ended at the end of 2023, PepsiCo still raised prices 9 percent in the final months of the year.

But all those price increases for soft drinks and chips are starting to bite. The company recently posted a surprising decline in sales.

Ramon Laguarta, CEO of PepsiCo, commented recent earnings call that the company is less likely to increase prices above the “normal price level” – about 2 to 3 percent per year. The company is seeing milder cost increases for ingredients and is focusing more on maintaining sales, he explains.

James Quincey, the CEO of Coca-Cola, explained this at a recent earnings call that the company had seen a major divide among US customers: some are under financial pressure and facing a 'real purchasing power crunch', while others 'still have enough money and purchasing power' to spend on lactose-free milk and protein shakes.

And some companies, such as Burger King owner Restaurant Brands International, have reported continued resilience in the United States.

Consumer spending is in “pretty good health,” company CEO Joshua Kobza recently told analysts.

This is reported by Walmart, the largest retailer in the country strong US sales in the fourth quarter, as more and more households with higher incomes started shopping in the value chain.

“We continue to see a customer who is resilient but looking for value,” Walmart CEO Doug McMillon said during an earnings call Tuesday. He noted that prices for food and consumables were still “slightly” higher than a year ago.

“Prices are lower than a year ago in places like eggs, apples and deli snacks, but higher in other places like asparagus and blackberries,” he said.

Businesses are seeing a return to normal.

Some companies appear to be following the rest of the economy toward more moderate price changes. Headline inflation, as measured by the consumer price index, peaked at 9.1 percent in the summer of 2022, but fell to just 3.1 percent early this year, while the cost of food commodities beef, cereals and some types of dairy have been relaxed.

“Our prices are broadly falling as inflation returns to what I'll call more normal levels,” said Ian Borden, chief financial officer at McDonald's. calling with investors. (McDonald's executives also noted that some lower-income customers are spending less per visit.)

Shake Shack, the burger and ice cream chain, plans to raise prices 2.5 percent this year — a return to the kind of increases that were normal before the pandemic, Katie Fogertey, the company's chief financial officer, said at a recent earnings call.

But she noted that some stores would have to raise prices by more than that to offset rising costs. That's especially true in markets where workers are hard to find and where larger price increases are needed to “offset pressures on wage inflation,” she said.

Such comments underline an important point. Many companies have taken advantage of inflation to boost profits, but in recent years some of the price increases for supermarkets and restaurants have been aimed at covering higher costs. The wages have been rising rapidly in the hospitality and retail sectors, and key ingredients had been expensive due to supply chain issues, the Russian invasion of Ukraine and bouts of bird flu.

Companies typically try to at least raise prices when the cost of doing business rises to avoid losing profits. But as pressure on labor and input costs begins to ease, companies can stop raising prices aggressively without risking a hit to their bottom line.

Some companies are turning to technology.

Of course, there is a way to cover the higher costs without raising prices: Companies can improve their productivity so that each employee can stock more shelves, flip more burgers, or serve more tables. That's partly what Wendy's does.

The fast-food chain is introducing digital menus, hoping they will “immediately benefit order accuracy, improve the crew experience” and enable revenue growth, said Kirk Tanner, the company's CEO. a recent earnings call.

The company also plans to try “dynamic pricing,” he said, which uses technology to change prices to meet consumer demand. Another company executive suggested the company expected “low single-digit prices” this year.

All this contributes to lower food inflation.

All told, signs indicate that grocery and restaurant inflation will likely be more subdued in 2024 than in previous years. previous three years.

Many food-related input costs are falling or rising less aggressively. Wage increases in foodservice remain high, but are cooling toward normal. And consumers are starting to push back on the kind of big price increases that companies used to boost their profit margins.

Mike Swanson, chief agricultural economist at Wells Fargo, expects grocery inflation to cool to 0.5 percent this year — “much slower than it has been” — although restaurant inflation could remain stronger as people continue to tighten their wallets open for eating out.

Even there, he said, “the trend will be downward.”

Jordyn Holman reporting contributed.