Fast Food Inflation Persists: McDonald's and Other Chains Brace for Continued Price Hikes

Fast food gained popularity due to its low cost and quick service, but consumers are discovering that its dishes no longer provide the same value as they previously did. Social media posts that have gone viral have praised McDonald's lunches that may cost up to $16, but in actuality, the price of these orders was inflated by the special burgers that were included.

Fast food classics like the Big Mac and Quarter Pounder are significantly eating into customers' budgets these days, even if costs may not be as high as those stories suggest.

Labor Department statistics indicates that while inflation is generally declining, it is behaving differently when it comes to eating out.

According to data from the U.S., menu prices at restaurants and other food service businesses increased 5.4% in October over the same month last year, states the Bureau of Labor Statistics. That's more than double the rate of inflation for groceries and more than general inflation, which was 3.2% annually as of last month.

However, fast-food establishments had some of the biggest price increases; in the last year, limited-service restaurant prices increased by 6.2%. Over the previous year, full-service restaurants raised their rates by 4.3%.

McDonald's declined to comment, but on a late-October results call, company officials recognized their more expensive products.

Low-income consumers, "which we would say is $45,000 and under, [and] was negative from an industry standpoint," have stopped coming to McDonald's due to its more expensive menu, the company's president and CEO, Chris Kempczinski, told analysts. "That part of the business, we're seeing traffic in the quarter was down."

Nevertheless, despite a decline in customer visitation, the higher pricing resulted in more expensive orders; McDonald's same-store sales increased by 8.1%, and the business reported $3.69 billion in revenue for the third quarter.

Labor expenses are a factor, and low-paid workers, including those employed by fast-food chains, have experienced a sharp increase in compensation, which has significantly reduced wage disparity, according to Josh Bivens, chief economist of the left-leaning Economic Policy Institute.

Wage Hikes Triggering Price Surge: Implications for Fast-Food Chains

When California enacts a new fast-food ordinance in April of next year, salaries there will rise by an additional $4 to $20 per hour, so residents should anticipate even higher Chipotle pricing.

Due to the rise in hourly pay, McDonald's locations in California may experience pricing increases next year, similar to Chipotle.

Moreover, Starbucks hasn't ruled out further price increases. The company stated it had increased prices throughout the previous fiscal year and would keep an eye out for "strategic pricing" options during a recent earnings call. The chain informed Business Insider that because pricing hikes differ per market, it does not reveal them.

Value purchases are becoming more costly as well. A $7 Deal Lover's Menu was just announced by Pizza Hut. When customers purchase two or more products, they can choose from 17 additional menu selections at a cost of $7 apiece. A medium one-topping pizza and eight boneless wings are among the options. There once was a $5 value bargain.