Limited-Service Restaurant CPI Lowest Since July 2020

Although headline inflation remains stubbornly sticky above 3%, the tick down to 3.3% is encouraging. The significant 2 month drop in limited-service CPI from 5% to 4.5% shows the power exerted by large QSRs turning on the discounting machines to recover lost traffic. We should expect to see more of this, as the negative press is pounding some brands. It will take sustained ‘value’ campaigns to reclaim that territory which is important territory to defend for the QSR juggernauts. FSR CPI, on the other hand, had a slight tick up to 3.5% - which is only slightly higher than overall inflation and considering the high dependence on labor is not likely to lead CPI lower.

Looking Ahead: Tariffs & Inflation

I’m old enough to remember when ‘free trade’ was a concept that had bi-partisan support. Today tariffs are one of the few things in Washington with bi-partisan support. Over half a century of globalization helped to keep cheap products moving across boarders which fueled the consumer economy. This trend started plateauing over the past decade and has been in decline since just prior to the pandemic.

Higher tariffs and ‘bringing manufacturing home’ is inflationary. The upside is that there are benefits to the US economy & our strategic interests, such as lower unemployment and supporting domestic production of industries that are important to our strategic interests. I’m not making a value judgement as to which is more or less important – but when we look at cold, hard facts, we are faced with choices & choices have repercussions. If we are entering an extended era of de-globalization, and we’ve resolved not to expand legal immigration or create visiting worker visas to fill vacant jobs – then higher inflation is the course we are choosing.