Economy

Stay informed with free updatesSimply sign up to the More

Stay informed with free updatesSimply sign up to the More

Consumers are shifting their morning routines, recent data shows.
This comes as prices for eggs and coffee, two staples of breakfast in the U.S., remain at record highs.
The price of eggs in the U.S. is up 53% year over year, according to the latest Bureau of Labor Statistics data.

domoyega | E+ | Getty Images

Alicia Love typically purchases the most popular beans for Coffee Labs Roasters in a one-year deal with her coffee importer. But at the end of last year, prices were so high that she decided to wait the market out.
Instead, prices climbed even higher. With supplies running low, she signed a purchase order for a three-month supply, and hopes that prices will soon ease.

“At the time I thought, should we wait to sign this new deal?” Love, an owner of the Tarrytown, New York, business, told CNBC. “I’m kicking myself in the butt now for not doing it then.”
The initial deal would have cost Love roughly $4 per bag, which is for either 130 pounds or 152 pounds, depending on the variety. The three-month deal she just signed was for roughly $5 per bag.
The skyrocketing cost of coffee comes as egg prices are also rising without any end in sight. Both products are pillars of an American breakfast, which has long been one of the cheaper meals to eat either at home or on the go. The quickly escalating prices means consumers are changing their habits and businesses are scurrying to react.

A rapid rise

In the latest consumer price index report, Bureau of Labor Statistics data showed the price of eggs in the U.S. up 53% year over year. But the pace of gains has been rapid. From December to January, the average cost of a dozen spiked 15%, per FRED data. In the week ended March 3, a 7% week-over-week increase brought average prices above $8 a dozen, JPMorgan Chase said.
While egg production is suffering from a devastating avian flu outbreak, which has resulted in the culling of millions of hens. Some say the consolidation of the industry is exacerbating the problem. On Friday, the Wall Street Journal reported that the U.S. Department of Justice opened an investigation into antitrust practices that might be at play.

Coffee, meanwhile, is also reaching record-high prices. A dry spell in Brazil, which has hit crop yields, is largely at fault. Over the past 12 months, futures prices have more than doubled. Last month, coffee prices on the Intercontinental Exchange surpassed $4 per pound for the first time ever.

Stock chart icon

Futures trading for coffee has spiked over the past 12 months.

“I’m hoping that we just have stability in the market. It’s very challenging to navigate the volatility, and the consumers are going to struggle with that,” said Andrew Blyth, coffee trading operations manager at Royal New York. “You can’t have menu prices changing once a month, especially for something as … routine as coffee.”
Consumers have gotten the message. Morgan Stanley said in a Wednesday note that its survey of consumer sentiment signaled the first negative reading since June 2024. This follows the University of Michigan’s own survey from February that showed consumers expect inflation to get worse in the near term.
Breakfast as a whole was already stretching consumers wallets in recent years, according to Robert Byrne, senior director of consumer research at Technomic’s food service segment.
“Speaking of breakfast more broadly, over the past few years we have seen affordability ratings for family-style chains (IHOP, Cracker Barrel, Denny’s, etc.) under greater pressure than what is reported across other restaurant segments,” Byrne said, in an interview.

That’s caused diners to shift their behavior, Byrne said.
“Breakfast is the easiest to either replace with something simple from home or even skip altogether,” Byrne said. He added, a recent Technomic survey found, on average, consumers use some type of foodservice for breakfast roughly 1.2 times per week.
“With inflation impacting all consumers – even affluent diners are pulling back on frequency – the thought is consumers are skipping other types of occasions and instead saving up for a weekend splurge, which probably is a dinner,” he said.
Technomic’s research also shows consumers are walking away from more routine breakfast orders at quick service options like Dunkin’ or McDonald’s. Byrne said, when they do go now, it’s often either an “impulse” order or a substitute for a splurge at a restaurant.

Profits under pressure

The impact is being felt across the restaurant industry. Dine Brands, the parent of breakfast staple IHOP, has seen its stock pull back more than 13% this year and shares hit a 52-week low on Wednesday after providing a disappointing 2025 outlook. The majority of analysts polled by FactSet maintain a hold rating.
“For IHOP … we’re expecting sort of low to mid single-digit inflation cost for the year. And that’s really primarily – it’s really driven by eggs,” Dine Brands Chief Financial Officer Vance Chang said on the company’s earnings call. “Outside of that, I think there’s some headwinds with bacon and coffee as well.”
Dine Brands expects domestic same-store sales for IHOP to be in the range of down 1% to up 2% for fiscal 2025.
Facing similar pressures, Waffle House and Denny’s recently imposed a surcharge for menu items containing eggs as opposed to a straight up price hike. Byrne said such a move may be more bearable for consumers because it’s assumed the surcharge is a temporary increase. McDonald’s has held the line and said the company will not implement an egg surcharge.

Stock chart icon

Restaurant stocks that offer robust breakfast menu items have been hit hard over the past year, with the exception of McDonald’s.

“My sense is that consumers may appreciate that it is noted as a temporary surcharge rather than a blanket price increase, as this implies that prices will return when the situation changes,” Byrne said. “On the flip side, printing menus is expensive and an operator may not be in a position to do so quickly.”
Restaurant stocks have well underperformed the market over the past year. McDonald’s is an outlier with a 10% gain over the past year, but Denny’s stock has plummeted more than 55% and Cracker Barrel has fallen 38% over the same period.

The impact of tariffs

More bad news could be coming for coffee drinkers. Coffee Labs’ Love said some decaffeinated coffee travels back and forth over the U.S. border and could be impacted by proposed tariffs.
She explained that if a roaster is using a washing method to decaffeinate their coffee, the mountain water used in the process comes from Mexico, but pre-roasted beans can be sent to Canada for processing. This means President Donald Trump’s tariffs on Mexico and Canada could add a new layer of price pressures.
“This cost will show across the board ,” Love said. “The Canada tariff will make decaf coffee cost a lot more on top of the already high price.”
Blyth is less sure that decaf coffee will be hurt by the White House’s trade policy, but signaled there is still a lack of clarity.
“As of now we don’t believe it would incur a tariff, but we just don’t know yet. Hopefully there is more guidance in the coming days to help navigate the unknowns,” Blyth said.

Don’t miss these insights from CNBC PRO More

The dramatic rise in Germany’s financing costs this week is far from a rejection of Friedrich Merz’s fiscal bazooka, investors say, with many believing the chancellor-in-waiting’s spending plan can boost growth without stretching Berlin’s finances beyond a sustainable level.German Bunds had their biggest one-day sell-off in decades on Wednesday as markets adjusted to a dramatic change in German fiscal policy, and a massive increase in debt issuance, following Merz’s “whatever it takes” plan to spend on defence and infrastructure.Despite settling down at the end of the week, the 10-year Bund remained elevated above 2.8 per cent on Friday, having started the week below 2.5 per cent.“German authorities have finally woken up to the fact that they needed to take drastic actions to revive their economy” and bolster their defence, said Nicolas Trindade, a senior portfolio manager at Axa’s investment arm. “This is positive for growth over the medium term, and Germany definitely has enough fiscal space to accommodate this very large extra spending.”Economists as early as Thursday morning started to revise up their growth forecasts. BNP is now forecasting that German GDP will rise by 0.7 per cent this year and 0.8 per cent in 2026, instead of a 0.2 per cent and 0.5 per cent increase. The uplift in expectations also helped drive German stocks to a record high on Thursday.The rise in Bund yields and stock prices was “an endorsement of the positive impact this policy shift will have on German growth”, said Gordon Shannon, a fund manager at TwentyFour Asset Management.Yields rose as traders moved to trim their expectations for European Central Bank rate cuts on the stronger outlook, even before Thursday’s meeting took the Eurozone benchmark rate down a quarter-point to 2.5 per cent. Traders are now fully pricing in only one further quarter-point cut, according to levels in swaps markets.The other major factor in the jump in yield, investors said, was the massive rise in Bund issuance, an asset that sets a benchmark for Eurozone debt prices but has often been in short supply due to Germany’s “debt brake” limiting government borrowing.That scarcity — also due to central banks holding a large proportion of the available stock — is one reason Bund yields have traded below zero for prolonged periods over the past decade.Traders began betting in earnest on higher Bund issuance last year as speculation rose over debt brake reform, taking 10-year Bund yields above the rate for euro interest rate swaps for the first time as investors braced for more supply. Higher yields reflect the risk that the broader Eurozone debt market might have “difficulty” in absorbing the supply of issuance “if the new fiscal headroom is indeed utilised”, said Felix Feather, economist at asset manager Aberdeen.It was not, he said, driven by a perceived increase in credit risk. “The possibility of Germany defaulting on or restructuring its debt is not a concern for us at this point,” he said.This was miles away, investors said, from the experience of the UK in 2022, when Liz Truss’s ill-fated “mini” Budget sparked a gilts crisis. A similar extreme scenario in Germany would have ramifications across the euro area.“Germany is the backbone of the Eurozone. If the German budget gets out of control, the Euro will be toast,” said Bert Flossbach, co-founder and chief investment officer of German asset manager Flossbach von Storch.The country’s light debt burden — with debt amounting to around 63 per cent of GDP, versus close to or above 100 per cent for some other big economies — means such a scenario is viewed as highly unlikely. There is more concern among investors about the potential repercussions of the shift higher in borrowing costs for other Euro area countries that are already much higher leveraged. The spread between German yields and those of other Eurozone borrowers such as France and Italy remained stable this week, a sharp contrast to historic moments of stress such as the Eurozone debt crisis. But the rise in yields in lockstep with Germany will still put pressure on countries with larger debt burdens.UK bonds were caught up in the sell-off, with the 10-year yield above 4.6 per cent on Friday, up from its low last month of below 4.4 per cent, as it comes only weeks before the government makes a statement on the public finances on March 26. The rise in yields put more pressure on chancellor Rachel Reeves to “deliver tax hikes or spending cuts to stay within her fiscal rules”, said Mark Dowding, chief investment officer for fixed income at RBC BlueBay Asset Management.A key factor in where Bunds go from here will be whether the hoped for German economic growth emerges.In one of the most optimistic outlooks, German economic think-tank IMK predicted that the German economy over the medium term may return to growth rates of up to 2 per cent — a rate of expansion slightly above the 1.8 per cent per year seen in the 15 years prior to the pandemic. Analysts also warn that a debt-funded investment spree will not be sufficient to overcome Germany’s persistent growth crisis, which many attribute to deeper issues like an ageing workforce, bureaucracy and an outdated industrial structure.The export dependent manufacturing sector is also hit hard by geopolitical tensions. “Wider deficits alone won’t solve any of [those challenges],” said Oliver Rakau, chief Germany economist at Oxford Economics.But other analysts are more positive. Bank of America called the fiscal stimulus a “game changer” for German growth that, paired with the higher bond issuance, pointed to a “meaningfully higher” forecast for the 10-year Bund yield than it had previously envisaged.“Bund yields are not going up out of fear, because Germany has plenty of fiscal space,” argued Mahmood Pradhan, head of global macro at Amundi. “The markets are treating this as a growth positive outcome.” More