Restaurants Roasted By Rising Meat Prices
Just hours after IMF Director Christine Lagarde got done telling the world that “everybody” would like a little more inflation, McDonald’s warned investors on Tuesday that it could be under pressure from commodity costs in the U.S. rising as much as 3% – higher than the 1% to 2% inflation that it had forecast just three months ago. In fact, the dining industry as a whole is reeling under the same pricing pressure, according to Bloomberg.
BJ’s Restaurants Inc. is expecting higher pork prices and Yum China Holdings Inc. told investors that rising poultry costs will hit their margins for the rest of the year. These worries come on top of a cost concerns about a rise in the minimum wage.
The rise in meat prices has been largely driven by the swine fever that is decimating China’s hog population. Processors around the world have been trying to make up for the shortages caused by the outbreak, but prices have spiked nonetheless. As companies look to substitute pork with more chicken and beef, those prices have also risen.
At Texas Roadhouse Inc., the price hikes have already hit the menu, with customers paying as much as 3% more to help the company try to offset its costs. President Scott Colosi said: “That’s going to go a long ways on margins.”
And so it seems that just about “everybody” in the industry is recognizing these signs of inflation – except, of course, for people like Jerome Powell, Christine Lagarde and other central bankers.
We reported back in mid April that pork prices were starting to rise as a result of the swine flu in China. Six weeks ago we reported that US federal agents seized 1 million pounds, or 454 metric tons, of pork smuggled from China to the same port amid growing fears the meat could contain traces of the African swine fever virus that has ravaged the Asian country’s hog herd.
As the disease continued to spread throughout China – the world’s largest producer and consumer – we predicted the trend would only get worse, which it has. US retail prices for boneless hams hit $4.31 per pound in March, the highest since 2015.
In the European Union, wholesale pig prices have climbed 16% in two months, while lean hog futures traded on the CME are higher by 32% since the February lows.
This is on top of the fact that Americans are already paying more for everyday items like beverages and diapers, according to a recent analysis In our prior note about Lagarde’s comments, we noted that most working people are already struggling to process the inflation in health-care costs, tuition, rent and other necessities that have hammered the standard of living in the developed world.
But as we know, inflation, like every other basic economic “mystery” that the Fed tries fruitlessly to understand, will only wind up being an issue after it’s too late to correct the problem.