You don’t need to be a close follower of economic data to know that food has gotten more expensive. The sticker shock at the grocery store and the anecdotes on social media reflect the truth: food prices at groceries and restaurants have increased by more than 25 percent in the last four years. That’s more than overall inflation (about 20 percent) and slightly more than average wage growth (about 24 percent). The Wall Street Journal recently reported on USDA data showing that Americans are now devoting more than 11.3 percent of their disposable income on food, the highest percentage in 30 years. While other food-spending measurements show a slightly smaller rise than the USDA’s, Americans are certainly spending more on food than they were immediately before the pandemic.
The data contain one puzzle, though: Americans don’t seem to be cutting back on dining out. Eating at restaurants is rightly considered something of a luxury; the more frugal way to consume food, generally, is to prepare it yourself. As the USDA shows, Americans are spending less of their income on groceries today than they were 30 years ago, even with recent food-price increases. At restaurants, however, Americans on average are spending quite a bit more of their income than they were three decades ago—well over 5 percent today versus about 4 percent in the early 1990s.
To understand this development, some historical perspective is useful. The Bureau of Labor Statistics’ Consumer Expenditures Survey tracks household spending on goods and services back to 1901. Over the course of the twentieth century, BLS reports that households cut the portion of their income spent on food from over 40 percent to about 10 percent. That remarkable change left Americans with much more money to spend on other things, both luxuries and necessities.
The BLS lumps together grocery and restaurant spending for most of its past data but separates the two from 1984 onward. The more recent data also allow us to focus on specific demographics, such as middle-class families (the middle 20 percent of earners in this dataset). In the mid-1980s, middle-class Americans spent about 7 percent of their gross income on food at restaurants, and about 10 percent on groceries. By the late 2010s, these numbers had fallen to about 5 percent on restaurants and 7.5 percent on groceries, similar to the numbers from 2022 (4.6 percent on restaurants and 8.4 percent on groceries).
Why the recent rise in food spending in general, and restaurant spending in particular? The biggest culprit is not at the grocery store, but at limited-service restaurants, or what most of us call fast food, where prices are up even more—about 30 percent since the beginning of 2020, and more than that at some establishments.
Remember Subway’s Five Dollar Footlongs? Those were largely phased out starting in 2012, but Subway customers might recall that promotional price today when they notice that even the chain’s six-inch sandwiches sell for around $6. That feels like a lot more for less, and it is—but what makes inflation in fast food hit especially hard is that prices have been rising in this sector for more than just the last three years.
FinanceBuzz released some data on a dozen fast-food restaurants, comparing prices in 2014 with 2024. While popular impressions of Subway’s surging prices aren’t wrong, the sandwich chain saw relatively lower price increases (39 percent) than other major fast-food restaurants. By contrast, America’s largest fast-food chain, McDonald’s, has raised its prices over 100 percent since 2014. Though the cost of its signature Big Mac is up “only” 50 percent, FinanceBuzz reports that the price of the Golden Arches’ iconic fries has increased a whopping 138 percent.
The first few monthly reports in 2024 give little hope of an imminent slowdown to price growth. Those reports contain at least one silver lining: grocery inflation, which peaked at over 13 percent in mid-2022, lately has been down closer to 1 percent annually. Consumers want to see grocery prices falling, but at least they have stopped going up so aggressively. The same can’t be said for fast food, where costs continue to rise at about 5 percent per year.
Unlike spending on luxury goods like vacations, food spending is not very flexible. We may hunt around for deals or switch to cheaper foods, but we won’t cut back much even as prices go up. We all have to eat. If the inflationary trend persists, Americans might soon be nostalgic for the Six Dollar Six-Inch.
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