I used to eat out a lot! Nowadays, it's very rare for me to eat out, even at fast food restaurants because the prices are crazy.
I understand that labor and costs are up but I also believe that restaurants are gouging consumers and using inflation and cost as an excuse. As an example, prices for a large bowl of Pho (in the Dallas/FW area) at Vietnamese restaurants everywhere, were about $6 before the pandemic. The same bowl now, at any Vietnamese restaurants, are priced between $16 and $20 or more at fancier establishments. Come on, the ingredients are TONS of broth which cost very little to make, some noodles which probably cost the restaurant .50 cents, a few tiny slices of beef and veggie condiments which do not cost them much. All in all, it probably cost them about $2 to make the Pho.
What are your thoughts on eating out these days and restaurant food prices?
Why Are Restaurant Prices So Crazy These Days?
byu/Potential_Tap8715 inAskEconomics
Posted by Potential_Tap8715
3 Comments
No, it’s not gouging.
The two primary inputs are food and labor.
1. Real wages for the lowest income deciles have increased since 2019, which places pressure on restaurants. Couple this with minimum wage hikes (some sector specific), and you get price pass through.
https://www.clevelandfed.org/publications/cd-reports/2026/20260218-real-hourly-wage-growth-across-lower-half-of-wage-distribution
https://www.epi.org/publication/strong-wage-growth-for-low-wage-workers-bucks-the-historic-trend/
2. Food prices have almost consistently outpaced overall inflation. Fertilizer, fuel, and immigration shocks since 2020 have all increased prices.
https://www.ers.usda.gov/data-products/food-price-outlook/summary-findings#:~:text=Between%20the%201970s%20and%20early,similar%20to%20its%202019%20rate.
3. The idea that this is “greed” is not borne out by industry stats, where 15-30% of restaurants fail within a year, and jumps to 50-60% for 3 year time horizons.
Food prices did spike fairly hard in 2022. However, over a longer period of time, food prices have generally not been particularly high. Particularly in the runup to covid, we see sub 2% annual inflation. Obviously, the covid period was weird, supply chains got disrupted, and we had an inflationary period.
However, gouging/greed is not a very good general explanation. Profit maximization happens in all industries, and is a routine, normal thing. Everyone wants to make more money all the time. It doesn’t simply show up occasionally. Note that ingredients are only one cost input. Rent, labor, advertising, etc are significant. Bottled water is usually the highest margin good relative to basic materials pricing, for instance, but it is bulky, generally a low ticket item, and doesn’t actually end up being a vast source of net profit.
Average restaurant profit margins are moderate, oscillating somewhere around 7%. While some are higher and some are lower, running a restaurant isn’t an easy path to unusual profits on average. Yes, prices have increased since pre-covid. Yes, fancy places do have higher prices than less fancy places. Both of those have other obvious explanations besides “gouging.”
Looking at CPI data, the cost of food away from home (which will be a mixture of fast food and sit down restaurants) in US Cities is up about 35% from February 2020 through February 2026. That’s an average increase of about 5.2% per year. [https://fred.stlouisfed.org/series/CUUR0000SEFV](https://fred.stlouisfed.org/series/CUUR0000SEFV)
Over that same time period, CPI for US cities is up about 26%, or an average of 4% per year. [https://fred.stlouisfed.org/series/CPIAUCSL](https://fred.stlouisfed.org/series/CPIAUCSL)
So at a high level, restaurant prices are growing a bit faster than everything else, but not dramatically so. If something used to cost $20 pre-covid and it grew at the overall rate of inflation it would now be $25. Instead, on average we see those things costing about $27.
Over roughly the same time period (Q4 2019-Q42025, the most recent 6 year period that data is available), we see that the cost of employing people in the accomidations and food service industry is up about 35% as well. [https://fred.stlouisfed.org/series/CIS2027200000000I](https://fred.stlouisfed.org/series/CIS2027200000000I)
So the cost of buying food away from home has grown about the same as the growth in the cost of hiring people to work at a restaurant.
See [https://fred.stlouisfed.org/graph/?g=1Uftm](https://fred.stlouisfed.org/graph/?g=1Uftm) for a combined indexed graph of these three data series.