Petflation 2018 Update: Prices Trending Up

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By: The Pet Business Professor

According to John Gibbons, president of A GPS for Pet Businesses, after a record low inflation rate of 0.4% in 2017, total pet returned to a more “normal” 1.3% in 2018. As always, every segment contributed proportionally to the industry total. Here are the specifics:

• Pet Food Prices were down slightly (-0.02%), virtually stable. This comes after the biggest drop ever in 2017, (-1.1%) and was the 5th annual decrease in the last 9 years.
• Veterinary Prices went up 2.6%. This was a small uptick from 2.2% in 2017, which was the lowest in history.
• Pet Services Prices increased 2.4%, more than double the 1.1% in 2017.
• Pet Supplies prices increased a full one percent. This is by far the largest increase since 2009. The previous leader was +0.07% in 2016. Prices are still -4.3% below the 2009 peak.

We will follow the pricing journey over the most recent years by industry segment. First up is…

• Veterinary – The annual rates show a significant slowing of inflation in 2017 but it regained about 1/3 of the lost ground in 2018. It turns out that the decline actually began in the second quarter of 2016, reaching the low point in the second quarter of 2017. The rate then turned up slightly but remained very stable for 15 months and finished with a significant lift in the final quarter of 2018.
• Pet Services – Like Veterinary, the annual inflation rate in this segment fell in 2017 and bounced back in 2018. However, the changes were much more extreme with a 45 percent drop and a 120 percent rebound. The timing of the decline also began in the second quarter of 2016 and bottomed out in the second quarter of 2017. This low inflation rate essentially remained constant for 12 months then inflation “exploded” upward in the second quarter of 2018 with a 160 percent increase to 2.9%. It slowed in the third quarter but then increased to 3.9% in the fourth quarter. This segment hasn’t seen an inflation rate this high since 2011.
• Pet Food – There was a minor pricing increase in 2016 which was driven totally by a big lift in the third quarter. Prices then turned down slightly, but the drop increased markedly in the second quarter of 2017 and maintained this deflation rate for 12 months. The lower price level was stable from April through September of 2018. A huge price increase in the fourth quarter essentially erased the deflation for the year and the 2018 prices remained near the level of 2017.
• Pet Supplies – This segment had miniscule inflation in 2016. Prices turned down in 2017 but then had a huge lift (for Supplies) in 2018. The upturn in prices in 2016 was driven solely by a big lift in the fourth quarter, which is prime buying season. Prices turned slightly down in the first quarter of 2017 and maintained deflation through the first quarter of 2018. Prices then turned up in the second quarter of 2018 and inflation increased strongly, reaching a level of 2.3% by the fourth quarter. Tariffs were undoubtedly a factor in this rise.
• Total Pet – Inflation was a relatively normal 1.4% in 2016 then began to slow in the 1st quarter of 2017. It stayed down through the 1st quarter of 2018, bottoming out at 0.0% in the 4th quarter of 2017. This produced a record low rate of 0.4% for 2017. Then, in the second quarter of 2018, driven primarily by big lifts in Supplies and Services, prices turned sharply up. There was another big lift in the fourth quarter (2.3%) as prices in all segments increased. The result was a 1.3% increase for the year, virtually identical to 2016.

The post-recession consumer is very price sensitive, but it is impossible to predict the impact of the pricing lift on 2018 money. Pet food prices remained essentially unchanged. Veterinary increased but the big lifts came in supplies and services. These are the two most discretionary segments. We’ll see if consumers reduce their purchase frequency. By the way, the inflation continues to grow. Here are numbers for Jan-Feb 2019 vs the first quarter of 2018:

• Serv. +3.93%
• Supp +3.90%
• Vet +3.01%
• Food +1.42%
• Total +2.72

See full report here.