July CPI: Consumers could shift from groceries to fast food as inflation rises

Yahoo Finance's Brooke DiPalma breaks down the food component in the July consumer price index (CPI) and how inflation may lead consumers to opt for fast food.

Video transcript

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- Well July's Consumer Price Index showed inflation slowing down more than Wall Street expected but prices for food continuing to climb. Yahoo Finance's Brooke DiPalma here with us. And that includes food away from home, right?

BROOKE DIPALMA: That's right, Brian. Well, prices of food away from home are up 7.6% year over year. Now that's an increase from June. That's up 0.7% from June. But that actually outpaces the cost of food at home-- well, food at home, rather, outpaces the cost of food away from home. So food at home, that's groceries, things that you would just pick up in the store. That's up 13.1%, up from July 1.4%.

So the big question here is, are consumers going to head to fast food chains over just going to the grocery store to pick up their food, when those prices are higher than just grabbing a burger at, say, McDonald's?

- Well, that's a really good point because I've experienced this myself. I've gone to the store and taken a look at a price of chicken thighs. And I'm like, with all the ingredients, maybe I should just go over to the fast food spot across the street. Is that happening? What are the prices looking at for fast food restaurants?

BROOKE DIPALMA: Yeah, well we're hearing a lot of that in these earnings call with major CEOs. Of course, Wendy's Todd Penegor coming on shortly. They said that consumers may be putting one less item in the bag, but nothing major there. Chipotle CFO Jack Hartung told Yahoo Finance that they're taking another price hike of 4% in August. Of course, their upper-income consumers, which make up about 60% of Chipotle's customer base, have not changed their buying habits. But they are seeing a little softness in consumers with an income of under $75,000.

Now I do want to emphasize, on a call, McDonald's CFO, Kevin Ozan, there, saying that we are seeing some trade down. We're seeing customers, and specifically lower-income customers, trade down to value offers and fewer combo meals. Of course, McDonald's making a big push with our loyalty program, looking to get customers to spend more, put more items in the bag with that new rewards program. Sweetgreen also lowered its 2022 forecast, with weaker sales [? have ?] begun around Memorial Day.

Now on a different note, Bloomin' Brands saying that we don't see customers managing their checks at this point. Of course, that's behind Outback Steakhouse and Carrabba's Italian Grill. In fact, they said that we're seeing continued trade up. And so that's been really strong for us.

Starbucks also seeing high demand. They were really gung ho on their call with investors. They said, we-- well, CEO, interim CEO Howard Schultz noting, "We are not currently seeing any measurable reduction in customer spending or any evidence of customers trading down." Of course, cold sales there. 75% of beverages are cold. That's a big win for Starbucks.

But more to come. Dutch Bros. Is reporting after the bell today. So we'll see how customers are responding there.

- Those cold brews and those bloomin' onions not cheap for sure. Yahoo Finance's Brooke DiPalma, thanks so much.