For the restaurant industry, inflation is a recipe for disaster

(The Washington Times) Small businesses simply can’t compete with the federal government.

Austrian economist Ludwig von Mises referred to inflation simply as an increase in money and credit. By this definition, inflation has arrived — at least in the short term — brought on in large part by the unprecedented federal spending masked as a response to COVID-19.

Much of this inflation has been in asset prices – stocks and houses – but it’s now becoming clear that prices of consumer goods and services are on the rise as well. 

As if severe labor shortages and the prospect of skyrocketing taxes weren’t enough, small business owners (who provide the majority of new jobs) are now dealing with the effects of this inflation. Restaurants will be acutely impacted by these trends cutting across our economy, as higher labor and food costs put pressure on already thin margins.

Inflation reduces the value and purchasing power of every dollar, making everything more expensive. In May, America’s annual inflation rate reached 5 percent, its highest level since August 2008. The Federal Reserve insists that the significant increase in inflation is “transitory.” Given the numerous supply chain disruptions that occurred across the world due to COVID-19 restrictions in 2020, this may be true. But considering the current administration’s economic agenda, it’s likely that inflation won’t go away in the short term. 

Fortunately, at this moment, the restaurant industry is healthier than it was in 2020. The American people are coming out of lockdowns and are eager to go out and eat and spend time and money. But that party may not last forever. Home delivery, for example, was enhanced during COVID-19 as people spent more time working at home and had extra stimulus money. Those same home delivery businesses are now possibly faced with a double whammy of more competition as COVID-19 restrictions vanish, and juiced-up unemployment benefits make it harder for them to hire and retain employees. If the customers’ wages can’t keep pace with sharply rising prices, the restaurant industry, including the pizza delivery business, will feel the pain. 

Kraft Heinz CEO Miguel Patricio said his company is “very concerned” about the drastic rise in inflation and looking at the possibility of increasing prices for consumers. You can almost guarantee that every restaurant owner in the country is facing the same difficult choice.

Think about it. If inflation continues to increase, the costs for raw ingredients and supplies will continue to increase right along with it. It’s only a matter of time before restaurants further increase their prices to consumers. The fact that the labor shortage is also forcing many businesses to raise wages to court a dwindling supply of potential employees all but guarantees a callous choice – raise prices at the counter or potentially go out of business.

But inflation (printing money) doesn’t just raise the cost of food — it devalues the dollar – a hidden tax on everyone as it raises the cost of everything. As families are faced with increasing costs of utility bills, groceries, gas, and household essentials, they will be increasingly less likely to spend on “extras.”