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Consumer Pet Spending: Petflation Price Increase Slows to +9.4% vs 2022

Glenn Polyn//April 17, 2023//

Tabby, sweet sleeping on the bed

Consumer Pet Spending: Petflation Price Increase Slows to +9.4% vs 2022

Glenn Polyn //April 17, 2023//

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John Gibbons, the Pet Business Professor and president of A GPS for Pet Businesses, has been reporting on inflation and its impact on the pet industry. The year-over-year (YOY) increases in the monthly Consumer Price Index (CPI) are larger than Gibbons has seen in decades; however, March prices grew 0.3 percent from February and the CPI was still up +5.0 percent vs. 2022, but down from +6.0 percent last month.

The grocery pricing surge has also slowed. After 12 straight months of double-digit YOY monthly percentage increases, grocery inflation is down to +8.4 percent. As in recent years, even minor price changes can affect consumer pet spending, especially in the discretionary pet segments, so Gibbons plans to publish monthly reports to track Petflation as it evolves in the market.

Total Petflation was +4.1 percent in December 2021 while the overall CPI was +7.0 percent. The gap narrowed as Petflation accelerated and reached 96.7 percent of the national rate in June 2022. National inflation has slowed since July, but Petflation has generally increased. It passed the National CPI in July and is still +9.4 percent in March, 88 percent higher than the national rate of 5.0 percent. As Gibbons looks deeper into the numbers, this and future reports will include:

  • A rolling 24-month tracking of the CPI for all pet segments and the national CPI. The base number will be pre-pandemic December 2019 in this and future reports, which will facilitate comparisons.
  • Monthly comparisons of 2023 vs. 2022 which will include Pet Segments and relevant Human spending categories. Plus:
    1. CPI change from the previous month.
    2. Inflation changes for recent years (2021>2022, 2020>2021, 2019>2020, 2018>2019).
    3. Total Inflation for the current month in 2023 vs. 2019 and now vs. 2021 to see the full inflation surge.
    4. Average annual YOY inflation rate from 2019 to 2023.
  • YTD comparisons
    1. YTD numbers for the monthly comparisons No. 2>4 above.

In the first graph, Gibbons will track the monthly change in prices for the 24 months from March 2021 to March 2023. He will use December 2019 as a base number to track the progress from pre-pandemic times through an eventual recovery. Inflation is a complex issue. This chart is designed to give a visual image of the flow of pricing, revealing the similarities and differences in patterns between segments and comparing them to the overall U.S. CPI. The current numbers plus year-end and those from 12 and 24 months earlier are included. This will give some key waypoints. In March, Supplies prices fell slightly but all other segments are at their cumulative inflation peak.

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In March 2021, the national CPI was only +3.1 percent and pet prices were +1.5 percent. Veterinary and Services prices generally inflated after mid-2020, similar to the overall CPI while Food and Supplies prices generally deflated until late 2021. After that time, Petflation took off. Pet Food prices consistently increased but the other segments had mixed patterns until July 2022, when all increased. In August>October, Petflation accelerated, except for a small October dip in Veterinary. In November>December, Services and Food prices continued to grow while Veterinary and Supplies prices stabilized. In January>March, prices in all but Supplies grew every month. Total Petflation since December 2019 has been above the U.S. CPI since November.

  • U.S. CPI – The inflation rate was below 2 percent through 2020. It turned up in January 2021 and continued to grow until flattening out in July>December 2022. Prices turned up again in January>March but 39 percent of the overall 17.5 percent increase since 2019 happened from January>June 2022.
  • Pet Food – Prices stayed generally below December 2019 levels from April 2020 to September 2021, when they turned up. There was a sharp lift in December 2021, and it has continued, with 92 percent of the 20.6 percent increase occurring since 2022.
  • Pet Supplies – Supplies prices were high in December 2019 due to the added tariffs. They then had a “deflated” roller coaster ride until mid-2021, when they returned to December 2019 prices and essentially stayed there until 2022. They turned up in January and hit an all-time high, beating the 2009 record. They plateaued from February> May, turned up in June, flattened in July, then turned up in August>October to a new record high. Prices stabilized in November>December but turned up again in January>February, reaching a new record high. In March, Supply prices fell -0.3 percent.
  • Pet Services – Normally inflation is 2+ percent. Perhaps due to closures, prices increased at a lower rate in 2020. In 2021, consumer demand increased but there were fewer outlets. Inflation grew in 2021 with the biggest lift in January>April. Inflation was stronger in 2022, but it got on a rollercoaster in March>June. It has turned up again July>March, but Pet Services remains in third place among pet industry segments.
  • Veterinary – Inflation has been pretty consistent in Veterinary. Prices turned up in March 2020 and grew through 2021. A pricing surge began in December 2021 which put them above the overall CPI. In May 2022, prices fell and stabilized in June causing them to briefly fall below the National CPI. However, prices turned up again and, despite October and December dips, have stayed above the National CPI since July and set new records in January>March.
  • Total Pet – The blending of patterns made Total Pet appear calm. In December 2021, the pricing surge began. In March>June 2022, the segments had their ups and downs, but Petflation grew again from July>November. It slowed in December then turned up again in January and February as all segments increased prices. Prices grew again in March as all, but Supplies, had increases. It has been ahead of the cumulative U.S. CPI on the 2019>2023 chart since November.

Next, Gibbons turns his attention to the YOY inflation rate change for March and compare it to last month, last year and to previous years. He also examines total inflation from 2021>2023 and 2019>2023. Although Petflation slowed in March, it is now 88 percent higher than the national rate. The chart will compare the inflation rates of 2022>2023 to 2021>2022 and other years but also see how much of the total inflation since 2019 came from the current pricing surge. Again, Gibbons has included some human categories to put the pet numbers into perspective.

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Overall, prices were +0.3 percent vs. February and were up 5.0 percent vs. March 2022. The Grocery increase is below double digits at 8.4 percent but is still a big negative. Inflation usually continues in March so it’s not surprising that six of nine categories had increased prices from last month, compared to eight in February. Four of the six increases were 0.7+ percent, all from the pet industry – Total Pet: 0.7 percent; Pet Food: 1.6 percent; Veterinary: 0.9 percent; and Pet Services: 0.8 percent.

The overall national YOY monthly inflation rate for March is down from February, but it is also much lower than the 2021>2022 rate. Four categories – Pet Supplies, Veterinary, Medical Services and Food at Home – have a similar pattern. In all other categories, the 2022>2023 inflation rate is higher than the 2021>2022 rate and is, in fact, the highest rate in any year since 2019 for all but Haircuts/Services. In the 2021>2023 measurement, it is revealed that over 70 percent of the cumulative inflation since 2019 occurred in the current surge for all categories but Veterinary Services, Pet Services, Medical Services and Haircuts/Personal Services.

Of Note: They are all service expenditures, not products. The Pet Supplies Segment has a unique situation. The 2021>2023 inflation surge provided 114 percent of the overall inflation since 2019. This happened because Pet Supplies prices strongly deflated in 2020>2021.

  • U.S. CPI– Prices are +0.3 percent from February. The YOY increase is down to +5.0 percent. It peaked at +9.1 percent back in June. The targeted inflation rate is <2 percent so we are still over 2.5 times higher than the target. However, a ninth straight slight decline is good news. It is also good that the current inflation rate is below 2021>2022 but the 2021>2023 rate is 14.0 percent, 75 percent of total inflation since 2019. How many households “broke even” by increasing their income by over 14 percent in two years?
  • Pet Food– Prices are +1.6 percent vs. February and 14.4 percent vs March 2022. They are also 71 percent higher than the Food at Home inflation rate, which is not good news. The YOY increase is being measured against a time when prices were only 5.4 percent above the 2019 level, but that increase is still an incredible 6.9 times the pre-pandemic 2.1 percent increase from 2018 to 2019. The 2021>2023 inflation surge generated 93 percent of the total 21.3 percent inflation since 2019.
  • Food at Home – Prices are down -0.2 percent from February. The monthly YOY increase is 8.4 percent, down from 10.2 percent in February and considerably lower than July>September 2022 when it exceeded 13 percent. The 24.5 percent inflation for this category since 2019 is 31 percent more than the national CPI and remains second to Veterinary. Since 2019, 78 percent of the inflation occurred from 2021>2023. The pattern now mirrors the national CPI but Gibbons notes that Grocery prices began inflating in 2020>2021 then the rate accelerated. It appears that the pandemic supply chain issues in Food, which contributed to higher prices, started early and foreshadowed problems in other categories and the overall CPI tsunami.
  • Pets & Supplies – Prices are down -0.3 percent from February. That’s the first decrease since November. They still have the lowest increase since 2019 and remain in last place in terms of the monthly increase vs. last year for pet segments. As Gibbons noted earlier, prices deflated in 2020>2021 so the 2021>2023 inflation surge accounted for 100+ percent of the total price increase since 2019. They reached an all-time high in October then prices deflated. Three straight months of increases pushed them to a new record high in February. but prices fell slightly in March.
  • Veterinary Services – Prices are +0.9 percent February. They are +7.7 percent from 2022 and are now in third place behind Food and Services in the pet industry. However, they are the leader in the increase since 2019 with 26.9 percent compared to Food at Home at 24.5 percent. For Veterinary Services, relatively high annual inflation is the norm. The rate did increase during the current surge so 65 percent of the four years’ worth of inflation occurred in the two years from 2021>2023.
  • Medical Services – Prices turned sharply up at the start of the pandemic but then inflation slowed and fell to a low rate in 20>21. In March, prices fell -0.5 percent from February and were +1.0 percent vs. 2022, the lowest rate from 2019>2023. Medical Services are not a big part of the current surge as only 34 percent of the 2019>2023 increase happened from 2021>2023.
  • Pet Services – Inflation slowed in 2020 but began to grow in 2021/2022. March 2023 prices were up +0.8 percent from last month and +8.0 percent vs. 2022, the second highest rate next to January’s +8.4 percent. Initially their inflation was tied to the current surge, but it may be becoming the norm as only 61 percent of the total since 2019 occurred from 2021>2023, down from 73 percent.
  • Haircuts/Other Personal Services – Prices are +0.2 percent from February and +5.4 percent from 2022, the second highest rate since 2019. Inflation had its biggest increase in 20>21 so just 50 percent of the inflation from 2019>2023 happened from 2021>2023.
  • Total Pet– Petflation is 25 percent higher than the 2021>2022 rate, 88 percent ahead of the National CPI and the +9.4 percent is the highest March rate in history. Prices increased in all segments but Supplies vs February so Total Pet was up 0.7 percent. This was expected as a February>March increase in Petflation has happened in 23 of the last 26 years. Food is the runaway leader, but the 2022>2023 inflation rate for all but Supplies exceeds the 2021>2022 rate. Pet Food has generally been immune as pet parents are used to paying a lot. However, inflation can cause reduced purchase frequency in the other Segments.

Now, let’s look at the YTD numbers.

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The increase from 2022 to 2023 is the biggest for five of nine categories. The 2022>2023 rate for Haircuts/Services is essentially tied with 2021>2022. The Total CPI, Pet Supplies and Medical Services are significantly down from 2021>2022. The average annual increase since 2019 is 4.4 percent or more for all but Medical Services (3.2 percent) and Pet Supplies (2.7 percent).

  • U.S. CPI – The current increase is down 27.5 percent from 2021>2022 but is still 32 percent more than the average increase from 2019>2023, and more than three times the average annual increase from 2018>2021. Seventy five percent of the 18.9 percent inflation since 2019 occurred from 2021>2023. Inflation is a big problem that started recently.
  • Pet Food – Strong inflation continues with the highest 2022>2023 and 2021>2023 rates on the chart. Deflation in the first half of 2021 kept YTD prices low then prices surged in 2022. More than 90 percent (90.7 percent) of the inflation since 2019 occurred from 2021>2023.
  • Food at Home – The 2023 YTD inflation rate has slowed slightly but still beat the U.S. CPI by 71 percent. You can see the impact of supply chain issues on the Grocery category as 79 percent of the inflation since 2019 occurred from 2021>2023.
  • Pets & Pet Supplies – While the inflation rate is down slightly at about 5.6 percent, prices remain near February’s record high. Prices deflated significantly in 2021, which helped to create a very unique situation. Prices are up 11.3 percent from 2019 but 114 percent of this increase happened from 2021>23. Prices are up 12.9 percent from their 2021 bottom.
  • Veterinary Services – They held onto the top spot in inflation since 2019 but they are only the fourth highest since 2021. At +5.9 percent, they have the highest average annual inflation rate since 2019 but Veterinary is unique. They are the only category in which the inflation rate grew steadily every year from 2019>2023. Throughout the pandemic and recovery, no matter what, just charge more.
  • Medical Services – Prices went up significantly at the beginning of the pandemic, but inflation slowed in 2021. In 2023 prices have deflated monthly to reach a rate actually 12.5 percent below the pre-pandemic 2018>2019 rate.
  • Pet Services – May 2022 set a record for the biggest year over year monthly increase in history. Prices fell in June but began to grow again in July, reaching record highs in September>March. The January increase of 8.4 percent was the largest in history. YTD March remained stable at 8.0 percent. Growing demand with decreased availability is a formula for inflation.
  • Haircuts & Personal Services – The services segments, essential and non-essential,home were hit hardest by the pandemic. After a small decrease in March 22, prices turned up again. The YTD rate is 11 percent below the 2020>21 peak but is 59% more than 2018>19. Consumers are paying 20% more than in 2019. This usually reduces the purchase frequency.
  • Total Pet – We have seen basically two different inflation patterns. After 2019, Prices in the Services segments continued to increase, and the rate accelerated as we moved into 2021. The product segments of Food and Supplies were on a different path. They deflated in 2020 and didn’t return to 2019 levels until mid-year 2021. Food prices began a slow increase, but Supplies remained stable until near yearend. In 2022, Food and Supplies prices turned sharply up. Food prices have continued to climb. Supplies prices stabilized Apr>May, grew Jun>Oct, fell in Nov, rose in Dec>Feb, then fell in Mar. The Pet Services segments have had ups and downs, but they are generally inflating. The net is a YTD Petflation rate vs. 2022 of 10.3 percent, 77.6 percent more than the National rate. In March 22 it was 27.5 percent less than the CPI.

Petflation is still very strong. Petflation fell from 10.9 percent in February to 9.4 percent in March. This is below the record 12.0 percent set in November, but it is a record for the month. Some good news is that after seven straight months over 10 percent, we are finally out of the double digits. However, the current rate is six times more than the 1.6 percent average rate from 2010>2021. The current pricing tidal wave is a significant event in the history of the pet industry, according to Gibbons, but will it affect pet parent spending? In his demographic analysis of the annual Consumer Expenditure Survey, which is conducted by the U.S. BLS with help from the Census Bureau, he has seen that pet spending continues to move to higher income groups. However, the impact of inflation varies by segment. The Pet Supplies segment is the most affected as since 2009 many categories have become commoditized, which makes them more price sensitive. Super Premium Food has become widespread because the perceived value has grown. Higher prices generally just push people to value shop. Veterinary prices have strongly inflated for years, resulting in a decrease in visit frequency. Spending in the Services segment is driven by higher incomes, so inflation is less impactful.

This recognized spending behavior of pet parents suggests that Gibbons might need to look a little deeper. Inflation is not just a singular event. It is cumulative. Total Pet Prices are up 9.4 percent from 2022, but they are up 17.6 percent from 2021 and 22.0 percent from 2019. That is a huge increase in a very short period. It puts tremendous monetary pressure on pet parents to prioritize their expenditures. The needs of their pet children are always a high priority but let’s hope for a little relief – stabilized prices and even deflation. This is unlikely with services but is definitely possible with pet products. It’s happened before. For the sake of pet parents, Gibbons is hoping for a repeat.