(Bloomberg) -- Dining out will cost more this year as U.S. restaurants take advantage of the nearly two-year long expansion to boost prices on food and drinks.
Higher-priced menus reflect growing confidence by eateries that consumers can afford to pay more to eat out. Restaurants are emboldened in part by the success of U.S. airlines, which have raised fares almost 10% since a year ago, according to Dean Maki, chief U.S. economist at Barclays Capital in New York.
"The fact that the airline industry was able to pass along cost increases signals that the pricing environment has become somewhat more favorable than it was during the heart of the recession," Maki said. "It's more likely restaurants will be able to pass along price increases now relative to the last few years."
Higher food and fuel costs are spurring menu changes, which are reflected in the food-services category of the personal- consumption-expenditures price index. Purchased meals and beverages, which make up about 6% of core PCE, rose nearly 2% in March from a year ago, the biggest increase since November 2009, according to data from the Bureau of Economic Analysis in Washington.
Several apparel companies-including San Francisco-based Levi Strauss & Co., which supplies jeans to retailers in more than 110 countries-also have announced increases to offset higher costs for cotton, foreign wages and freight. With imported-clothing prices rising at the fastest rate in at least a decade, retailers stand a better chance of exerting pricing power, Maki said.
Pressure On The Fed
All this puts pressure on the Federal Reserve to prevent inflation from getting out of hand, said Samer Nsouli, chief investment officer in New York for the Lyford Global Macro Fund.
"Inflation hawks see restaurants and airlines passing through higher prices and say the Fed's behind the curve," Nsouli said. "The Fed's not paying enough attention to such trends when it comes to its continued accommodative monetary policy."
The central bank's Federal Open Market Committee said it "will pay close attention to the evolution of inflation" in the statement for its April 27 meeting, when it kept the target for the federal funds rate, or overnight inter-bank lending rate, at zero to 0.25%. It first set the rate at the record low in December 2008. The Fed also reaffirmed at the April meeting its plan to complete a $600 billion Treasury purchase program by June.
'Transitory' Threat