McDonald's to boost prices as costs increase, analyst says

McDonald's Corp., the world's biggest restaurant chain, will raise prices in the U.S. as much as 3 percent this year to combat higher costs, according to Larry Miller, an analyst with RBC Capital Markets.

“Rising inflation will be met with price increases in the 2 percent to 3 percent range in 2011 versus 0 percent in 2010,” Miller wrote in a note dated yesterday. He raised his rating on the company to “outperform” from “sector perform,” saying the pricing should help sales. His 12-month target price is $85 a share, compared with yesterday's close at $74.68 on the New York Stock Exchange.

McDonald's generally doesn't comment on analyst projections, Lizzie Roscoe, a spokeswoman for the Oak Brook-based company, said in a telephone interview. McDonald's will report earnings on Jan. 24.

The wholesale cost of choice beef reached a 30-month high yesterday. Meat prices may climb as much as 3.5 percent this year, according to the U.S. Department of Agriculture. Before today, McDonald's shares advanced 20 percent in the past year, compared with a 14 percent increase in the Standard & Poor's 500 Index.

In November, McDonald's increased the prices of burgers, drinks and snacks in China after inflation surged to a two-year high. As of Oct. 14, a Big Mac cost an average of $2.18 in Beijing, compared with an average $3.71 in the U.S., according to The Economist's Big Mac Index.