5 Top Restaurant Stocks To Bet On Cooling Inflation

Restaurant stocks have failed to find favor with investors in the last few quarters despite economic growth, somewhat lower energy prices and higher incomes. This is because, along with wage growth, inflation has also been on the rise, thereby translating into lower real income and thus less disposable income.

As a result, most of the restaurateurs have been grappling with sluggish comps and soft traffic growth. Resultantly, there has been a lot of buzz about the restaurant industry falling into recession.

However, if the recent economic data is anything to go by, then speculation surrounding a restaurant recession should hold no ground.

Notably, as per recent data released by the U.S. Labor Department in Washington on Jun 14, the “core” inflation rate, a closely monitored measure of underlying inflation that excludes discretionary food and energy components, weakened to 1.7% in May from 2.3% in January.

Moreover, with inflation on a 12-month basis expected to remain below 2% in the near term, restaurant companies should certainly get a boost. This is because softening inflation is likely to translate into more purchasing power and higher spending capacity.

Besides, recent strong gains in the labor market on the back of a steady rise in wages are also expected to encourage consumers to dine out more and put a check on declining traffic.

In fact, the labor market is near full employment with a drop in the unemployment rate at a nearly 16-year low of 4.3% in May. Moreover, as per data released by the Labor Department on Thursday, new jobless claims for last week fell by 8000 to 237,000 from the previous week.

Meanwhile, the Fed’s decision to lift the benchmark interest rate to a range of 1–1.25% should be further reassurance that all’s well with the economy.

Given the latest sign of the inflation pressure cooling along with other favorable economic indicators, picking some sound restaurant companies to whet your investment appetite won’t be a bad proposition.

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