Inflation might no longer be making headlines but, according to John Gibbons, the Pet Business Professor and president of A GPS for Pet Businesses, it is still impacting the pet sector. The year-over-year (YOY) increases in the monthly Consumer Price Index (CPI) that were largest that they have been in decades are slowing. July prices grew 0.2 percent from June and the CPI was +3.2 percent vs. 2022, up slightly from +3.0 percent last month – a pause in the decline. Grocery pricing continues to slow. After 12 straight months of double-digit YOY monthly percentage increases, grocery inflation is down to +3.6 percent, now with 5 consecutive months below 10 percent. As we have learned, even minor price changes can affect consumer pet spending, especially in the discretionary pet segments, so we will continue 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 2022, but Petflation has generally increased. It passed the National CPI in July 2022 and is now +8.7 percent in July, 2.7 times the national rate of 3.2 percent. We will look 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 23 vs 22 which will include Pet Segments and relevant Human spending categories. Plus
- CPI change from the previous month.
- Inflation changes for recent years (21>22, 20>21, 19>20, 18>19)
- Total Inflation for the current month in 2023 vs 2019 and now vs 2021 to see the full inflation surge.
- Average annual Year Over Year inflation rate from 2019 to 2023
- YTD comparisons
- YTD numbers for the monthly comparisons #2>4 above
Gibbons uses the first graph to track the monthly change in prices for the 24 months from July 2021 to July 2023. We will use December 2019 as a base number so we can track the progress from pre-pandemic times through an eventual recovery. Inflation is a complex issue. This chart is designed to give you a visual image of the flow of pricing. You can see the similarities and differences in patterns between segments and compare them to the overall U.S. CPI. The current numbers plus yearend and those from 12 and 24 months earlier are included. This will give you some key waypoints. In July, Pet Products prices were down again from last month, but they increased in both Service segments.
(click to enlarge)
In July 2021, the CPI was +6.2 percent and pet prices were +2.8 percent. Like the U.S. CPI, Veterinary and Services prices generally inflated after mid-2020, 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 Aug>Oct Petflation accelerated. In Nov>Dec, Services & Food prices continued to grow while Veterinary and Supplies prices stabilized. In January>April, prices grew every month except for 1 dip by Supplies. In May Products prices grew while Services slowed. In June and July this pattern was reversed. Petflation has been above the CPI since November 22.
- 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 Jul>Dec 2022. Prices turned up again in Jan>Jul but 36 percent of the overall 19.0 percent increase in the 43 months since December 2019 happened in the 6 months from January>June 2022 – 14 percent of the time.
- Pet Food – Prices stayed generally below December 2019 levels from April 2020>September 2021, when they turned up. There was a sharp lift in Dec 2021, and it continued until the June/July dip. 93 percent of the 22.9 percent increase has occurred 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 Feb> May, turned up in June, flattened in July, then turned up in Aug>Oct setting a new record. Prices stabilized in Nov>Dec but turned up in Jan>Feb, a new record. They fell in March, set a record in May, then fell in Jun>Jul.
- 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 Mar>June. It turned up again July>Mar but the increase slowed to +0.1 percent in April. Prices fell -0.3 percent in May then turned up again in June>July.
- 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 they have stayed above the CPI since July. In 2023 prices slowly grew except for a dip in May.
- Total Pet – The blending of patterns made Total Pet appear calm. In December 2021 the pricing surge began. In Mar>June 2022 the segments had ups & downs, but Petflation grew again from Jul>Nov. It slowed in December, turned up Jan>May, then fell in Jun>Jul. Except for 7 individual monthly dips, including four in June>July, prices in all segments have increased monthly in 2023. It has been ahead of the cumulative U.S. CPI since November 2022.
Next, Gibbons turns his attention to the YOY inflation rate change for July and compare it to last month, last year and to previous years. The chart also reveals total inflation from 2021>2023 and 2019>2023. Petflation was again below double digits at 8.7 percent in July, but it is still over 2.7 times the national rate. The chart will compare the inflation rates of 2022>2023 to 2021>2022 and other years, but it also reveals 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.
(click to enlarge)
Overall, Prices were +0.2 percent vs. June and were up 3.2 percent vs. July 2022. The Grocery increase is down again, to +3.6 percent from +4.7 percent, but still impacts consumers. Prices often rebound in July so it’s not surprising that only three of nine categories had decreased prices from last month, compared to five in June 3 in May and one in April. Of the six categories with increases, three were from Pet: Veterinary, Services and Total. Three of the six were over 0.3 percent, Haircuts: 0.6 percent; Groceries and Pet Services: 0.4 percent. The national YOY monthly inflation rate for July is up from June but is still much lower than the 21>22 rate. All but 3 categories – Veterinary, Non-Vet Services and Haircuts have a similar pattern. In the 2 Pet Categories the 22>23 inflation rate is higher than the 21>22 rate and is in fact the highest rate in any year since 2019. In our 2021>2023 measurement you also can see that over 67 percent of the cumulative inflation since 2019 occurred from 21>23 for all segments but Pet Services, Medical Services, Haircuts/Personal Services and the U.S. CPI.
Note: These are service expenditures and show its increasing influence on the CPI. Pet products are unique. The 2021>2023 inflation surge provided over 98 percent of the overall inflation since 2019. Gibbons believes this happened because pet product prices were deflated in 2021.
- U.S. CPI– Prices are +0.2 percent from June. The YOY increase rose to +3.2 percent from 3.0 percent. It peaked at +9.1 percent back in June 2022. The targeted inflation rate is <2 percent so we are still 50 percent higher than the target. This is the first lift after 12 straight declines, which Gibbons notes is not good news. It’s good that the current inflation rate is below 2021>2022 but the 2021>2023 rate is still 12.0 percent, which accounts for 63 percent of total inflation since 2019. How many households “broke even” by increasing their income by 12 percent in two years?
- Pet Food– Prices are -0.2 percent vs June and +10.6 percent vs. July 2022. They are also 2.9 times the Food at Home inflation rate – again, Gibbons notes this is not good news! The YOY increase of 10.6 percent is being measured against a time when prices were 11.1 percent above the 2019 level, but that increase is still an incredible 2.9 times the pre-pandemic 3.6 percent increase from 2018 to 2019. The 2021>2023 inflation surge generated 100 percent of the total 22.7 percent inflation since 2019.
- Food at Home – Prices are up +0.4 percent from June. The monthly YOY increase is 3.6 percent, down from 4.7 percent in June and considerably lower than July>September 2022, when it exceeded 13 percent. The 25.7 percent inflation for this category since 2019 is 34 percent more than the national CPI and remains second to Veterinary – with 67 percent of the inflation since 2019 occurred from 2021>2023. The pattern mirrors the national CPI, but we should note 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 increase.
- Pets & Supplies– Prices fell -0.5 percent from June, and they still have the lowest increase since 2019. They also stayed in last place in terms of the monthly increase vs. last year for Pet Segments. As Gibbons noted earlier, prices were deflated for much of 2021 so the 2021>2023 inflation surge accounted for 96 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. Prices fell in March, bounced back in April>May to a new record high then fell in June and July.
- Veterinary Services – Prices are up 0.1 percent from June. They are +10.63 percent from 2022 and took over 1st place from Food (+10.61) in the pet industry. Plus, they are still the leader in the increase since 2019 with 29.6 compared to Food at home at 25.7. For Veterinary Services, relatively high annual inflation is the norm. The rate did increase during the current surge so 70 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 2020>2021. In July, prices fell -0.3 from June and are -1.5 vs 2022, the only 2022>2023 deflation in any category. Medical Services are not a big part of the current surge as only 33 percent of the 2019>2023 increase happened from 2021>2023.
- Pet Services – Inflation slowed in 2020 but began to grow in 2021/2022. July 23 prices were up +0.4 from June and +6.3 vs. 2022, which is the same as last month but much lower than 8.0 percent in March. Initially their inflation was tied to the current surge, but it may be becoming the norm as only 59 percent of the total since 2019 occurred from 2021>2023.
- Haircuts/Other Personal Services – Prices are +0.6 percent from June and +5.3 percent from 2022, the second highest rate since 2019. However, inflation has been rather consistent so just 46 percent of the inflation from 2019>2023 happened from 2021>2023.
- Total Pet– Petflation is now 4 percent lower than the 2021>2022 rate, but 2.7 times the National CPI. For July, +8.7 percent is second only to +9.1 percent in 2022. Compared to June, product prices fell while Services increased so Total Pet was +0.03 percent. A June>July increase has happened in 19 of the last 26 years so a small increase was expected. Food and Veterinary are still the Petflation leaders, but only Service segments have a 2022>2023 rate above 2021>2022. Pet Food has been immune to inflation as pet parents are used to paying a lot. However, inflation can cause reduced purchase frequency in the other segments.
Now, Gibbons takes a look at the YTD numbers.
(click to enlarge)
The increase from 2022 to 2023 is the biggest for for of nine categories – All Pet. The 22>2023 rate for Haircuts is slightly below 2021>2022. However, the Total CPI, Pet Supplies, Medical Services and Food at Home are significantly down from 2021>2022. The average annual increase since 2019 is 4.4 percent or more for all but Medical Services (3.0 percent) and Pet Supplies (2.7 percent).
- U.S. CPI – The current increase is down 45 percent from 2021>2022 and only 4.5 percent more than the average increase from 2019>2023, but it’s 2.1 times the average annual increase from 2018>2021, and 71 percent of the 18.9 percent inflation since 2019 occurred from 2021>23. 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., with 95.2 percent of the inflation since 2019 having occurred from 2021>2023.
- Food at Home – The 2023 YTD inflation rate has slowed but still beat the U.S. CPI by 57 percent. You can see the impact of supply chain issues on the Grocery category as 74 percent of the inflation since 2019 occurred from 2021>2023.
- Pets & Pet Supplies – The inflation rate is down to 5.0 percent as prices fell again in July. Prices deflated significantly in in both 2020 and 2021 which helped to create a very unique situation. Prices are up 11.1 percent from 2019 but 114 percent of this increase happened from 2021>23. Prices are up 12.6 percent from their 2021 “bottom.”
- Veterinary Services – They are still No. 1 in inflation since 2019, but they have only the third highest rate since 2021. At +6.4 percent, they have the highest average annual inflation rate since 2019. Except for a sight slowing in 2020, prices have consistently increased since 2019. Regardless of the situation, strong Inflation is the norm in Veterinary Services.
- Medical Services – Prices went up significantly at the beginning of the pandemic, but inflation slowed in 2021. In 2023, prices have been deflating and are now at a rate actually 77 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>April. The January 2023 increase of 8.4 percent set a new record. YTD July again slipped a little to 6.9 percent. Interestingly, although the rates are not as high, they have the exact same annual inflation pattern as Veterinary. The Services segments in the Pet Industry are definitely unique.
- Haircuts & Personal Services – The services segments, essential & non-essential were hit hardest by the pandemic. After a small decrease in March 22, prices turned up again. Since 2021 inflation has been a consistent 5+ percent, 90 percent higher than 2018>2019. Consumers are paying 21 percent more than in 2019, which usually reduces the purchase frequency.
- Total Pet – There were two different patterns. After 2019, prices in the Services segments continued to increase, and the rate grew as we moved into 2021. Pet products, specifically Food and Supplies, took 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 continued to climb until June/July 2023. Supplies prices stabilized Apr>May, grew June>October, fell in November, rose in December>February, fell in Mar, rose in April>May then fell in June>July. The services segments have also had ups and downs but are generally inflating. The net is a YTD Petflation rate vs. 2022 of 10.0 percent, 2.2 times the national rate. In May 2022, it was 5.8 percent below the CPI.
Gibbons is declaring that Petflation is still strong. He explains that it slowed from 9.6 percent in June to 8.7 percent in July. This is below the record 12.0 percent set in November, but still the second highest for the month. More bad news is that nine of the last 12 months have been over 10 percent and the current rate is still 5.4 times more than the 1.6 percent average rate from 2010>2021. It’s also 2.7 times the national rate. There is no doubt that the current pricing tsunami is a significant event in the history of the pet industry, but will it affect pet parents’ spending. In our demographic analysis of the annual Consumer Expenditure Survey which is conducted by the US BLS with help from the Census Bureau we have seen that Pet spending continues to move to higher income groups. However, the impact of inflation varies by segment. Supplies 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 the most driven by higher incomes, so inflation is less impactful. This spending behavior of Pet Parents suggests that we should look a little deeper. Inflation is not just a singular event. It is cumulative. Total Pet Prices are up 8.7 percent from 2022 but they are up 18.5 percent from 2021 and 22.7 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. Gibbons understands that the needs of their pet children are always a high priority, but he says that a little relief is needed to stabilize prices. Deflation is unlikely in the Service segments but is definitely possible in products and, according to Gibbons, it is sorely needed.