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 huge year-over-year (YOY) increases in the monthly Consumer Price Index (CPI) that peaked in June 2022 at 9.1 percent had begun to slow before turning up in July 2023. August prices grew 0.4 percent from July and the CPI was +3.7 percent vs. 2022, up from +3.2 percent last month – two straight months of increases.
However, grocery inflation continues to drop. After 12 straight months of double-digit YOY monthly increases, grocery inflation is down to +3.0 percent, six consecutive months below 10 percent. As Gibbons notes, even minor price changes can affect consumer pet spending, especially in the discretionary pet segments, so he 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 considerably since June 2022, but Petflation generally increased until June 2023. It passed the national CPI in July 2022 and, at 6.6 percent in August, it is still 1.8 times the national rate of 3.7 percent. Gibbons look deeper into the numbers, as 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
- CPI change from the previous month.
- Inflation changes for recent years (2021>2022, 2020>2021, 2019>2020, 2018>2019).
- Total inflation for the current month in 2023 vs. 2019 and now vs. 2021 to see the full inflation surge.
- Average annual YOY inflation rate from 2019 to 2023.
- Year-to-date (YTD) comparisons.
- YTD numbers for the monthly comparisons No. 2>No. 4 above
In our first graph we will track the monthly change in prices for the 24 months from August 2021 to August 2023. Gibbons uses 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 offer a visual image of the flow of pricing. It shows 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. In August, pet prices were down from last month overall and in all segments but non-vet services.
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In August 2021, the CPI was +6.5 percent and pet prices were +2.8 percent from December 2019. Like the U.S. CPI, prices in the Services segments generally inflated after mid-2020, while Product prices generally deflated until late 2021. Then Petflation took off. Food prices consistently increased but the other segments had mixed patterns until July 2022, when all increased. In August>October, Petflation accelerated. In November>December, Services and Food prices continued to grow while Veterinary and Supplies prices stabilized. In January>April, prices grew every month except for one dip by Supplies. In May, Products prices grew while Services slowed. In June/July, this pattern reversed. In August, all but Services fell. Petflation has been above the CPI since November 2022.
- 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>August, but 35 percent of the overall 19.5 percent increase in the 44 months since December 2019 happened in the six months from January>June 2022 – 14 percent of the time.
- Pet Food – Prices stayed generally below Dec 2019 levels from April 2020>September 2021 when they turned up. There was a sharp lift in December 2021, and it continued until the June>August 2023 dip. And 93 percent of the 22.7 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” rollercoaster 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 set a new record. Prices stabilized in November>December but turned up in January>February 2023, a new record. They fell in March, set a record in May, then fell in June>August.
- Pet Services– Inflation is normally 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 took a rollercoaster ride in March>June. It turned up again July 22>March 23, but the increase slowed to +0.1 percent in April. Prices fell -0.3 percent in May then turned up again in June>August.
- 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 fall below the national CPI. However, prices turned up again and despite some dips they have stayed above the CPI since July 2022. In 2023 prices grew through May, stabilized, then fell in August.
- 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 ups and downs, but Petflation grew again from July>November. It slowed in December, turned up January>May 23, then fell in June>August. Except for five individual monthly dips, prices in all segments increased monthly January>June 2023. There were five more dips in July>August, but Petflation has stayed above the CPI since November 2022.
Gibbons next turns his attention to the YOY inflation rate change for August and compares it to last month, last year and to previous years. He also shows total inflation from 2021>2023 and 2019>2023. Petflation was well below double digits at 6.6 percent in August but is still 1.8 times the National rate. The chart will allow you to 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, we’ve included some human categories to put the pet numbers into perspective.
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Overall, Prices were +0.4 percent vs. July and were up 3.7 percent vs. August 2022. The Grocery increase is down again, to +3.0 percent from +3.6 percent, but still impacts consumers. Four of nine categories had decreased prices from last month, compared to three in July, five in June, three in May and one in April. All of the four decreases were from the pet industry. Pet Services is the only category that had an increase. The national YOY monthly inflation rate for August is up from July, but it is still much lower than the 2021>2022 rate. All but two categories, Non-Vet Services and Haircuts, have a similar yearly pattern. For Non-Vet Pet Services, the 2022>2023 inflation rate is not just higher than the 2021>2022 rate. It is the highest rate in any year since 2019. In our 2021>2023 measurement you also can see that over 65 percent of the cumulative inflation since 2019 occurred from 2021>2023 for all segments but Pet Services, Medical Services, Haircuts/Personal Services and the U.S. CPI. We should note that these individual segments are all service expenditures. This demonstrates the strong influence of all Services expenditures on the National CPI. Pet products are unique. The 2021>2023 inflation surge provided over 96 percent of their overall inflation since 2019. This happened because Pet Products prices in 2021 were just starting to recover from a deflationary period.
- U.S. CPI– Prices are +0.4 percent from July. The YOY increase rose to +3.7 percent from 3.2 percent. It peaked at +9.1 percent back in June 2022. The targeted inflation rate is <2 percent so we are still 85 percent higher than the target. According to Gibbons, two lifts in a row after 12 straight declines is not good news. It’s good that the current inflation rate is below 2021>2022 but the 2021>2023 rate is still 12.2 percent, 62 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 -0.1 percent vs. July and +8.7 percent vs August 2022. They are also 2.9 times the Food at Home inflation rate – not good news! The YOY increase of 8.7 percent is being measured against a time when prices were 13.0 percent above the 2019 level, but that increase is still 2.2 times the pre-pandemic 3.9 percent increase from 2018 to 2019. The 2021>2023 inflation surge actually generated 100.4 percent of the total 22.8 percent inflation since 2019.
- Food at Home – Prices are up +0.1 percent from July. The monthly YOY increase is 3.0 percent, down from 3.6 percent in July and considerably lower than Jul>Sep 2022 when it exceeded 13 percent. The 25.9 percent inflation for this category since 2019 is 32 percent more than the national CPI and remains second to Veterinary; 65 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 tidal wave.
- Pets & Supplies– Prices plummeted -2.6 percent from July. This produced deflation of -0.6 percent vs August 2022. They still have the lowest increase since 2019. As we noted, prices were deflated for much of 2021. However, even with recent price drops the 2021>2023 inflation surge accounted for 81 percent of the total price increase since 2019. They reached an all-time high in October 2022 then prices deflated. Three straight months of increases pushed them to a new record high in February. Prices fell in March, bounced back in Apr>May to a new record high then fell in June>August.
- Veterinary Services – Prices are down -1.2 percent from July. They are +8.4 percent from 2022 and fell back to second place behind Food (+8.7 percent) in the Pet Industry. However, they are still the leader in the increase since 2019 with 27.7 percent compared to Food at home at 25.9 percent. For Veterinary Services, relatively high annual inflation is the norm. The rate did increase during the current surge so 70 percent of the four years’ worth of inflation occurred in the 2 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. Prices grew 2 percent from July and are -2.1 percent vs. 2022. Prices have now deflated for four straight months. 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. August 2023 prices were +0.9 percent from July and +7.2 percent vs 2022, which is up from 6.3 percent in July 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 58 percent of the total since 2019 occurred from 2021>2023.
- Haircuts/Other Personal Services – Prices are +0.4 percent from July and +5.1 percent from 2022, the second highest rate since 2019. However, inflation has been rather consistent so just 45 percent of the inflation from 2019>2023 happened from 2021>2023.
- Total Pet– Petflation is now 35 percent lower than the 2021>2022 rate, but 1.8 times the national CPI. For August, +6.6 percent is the third highest rate since 1997 (2022: 10.1 percent; 2008: 9.3 percent). Versus July, prices fell for all but Services so Total Pet was -0.9 percent. A July>August decrease has happened in 13 of the last 24 years, so it was not a surprise. Food and Veterinary are still the Petflation leaders, but all segments have an influence in the overall numbers. Pet Food has been immune to inflation as pet parents are used to paying a lot; however, inflation can reduce purchase frequency in the other segments.
Now, Gibbons takes a look at the YTD numbers.
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The increase from 2022 to 2023 is the biggest for four of nine categories, and all of them are Pet. The 2022>2023 rate for Haircuts is equal to 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 (2.9 percent) and Pet Supplies (2.6 percent).
- U.S. CPI – The current increase is down 46 percent from 21>22 and only 2.3 percent more than the average increase from 2019>2023, but it’s double the average annual increase from 2018>2021. 69 percent of the 19.0 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 95.6 percent of the inflation since 2019 occurred from 2021>2023.
- Food at Home – The 2023 YTD inflation rate has slowed but still beat the U.S. CPI by 49 percent. The impact of supply chain issues on the Grocery category can be seen as 73 percent of the inflation since 2019 has occurred from 2021>2023.
- Pets & Pet Supplies – The inflation rate is down to 4.3 percent as prices fell again in August. Prices deflated significantly in both 2020 & 2021 which helped to create a very unique situation. Prices are up 10.8 percent from 2019 but 109 percent of this increase happened from 2021>2023. Prices are up 11.8 percent from their 2021 “bottom.”
- Veterinary Services – They are still No. 1 in inflation since 2019, but they are tied for the second 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, inflation has 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 0.2 percent YTD, which is 99 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 they began to grow again in July, reaching record highs in September>April 2023. The January 2023 increase of 8.4 percent set a new record. YTD August grew a little from 6.9 percent to 7.0 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 and non-essential, were hit hardest by the pandemic. After a small decrease in March 2022, 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, 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>August 2023. Supplies prices stabilized April>May, then they grew June>October, fell in November, rose in December>February, fell in March, rose in April>May then fell again in June>August. The Services segments have also had ups and downs, but they have generally inflated. The net is a YTD Petflation rate vs. 2022 of 9.5 percent, 2.1 times the national rate. In May 2022, it was 5.8 percent below the CPI.
Gibbons is noting that Petflation is slowing, but it is still strong. Petflation dropped from 8.7 percent in July to 6.6 percent in August. This is well below the record 12.0 percent set in November, but still the third highest rate for the month. He adds that more bad news is the fact that nine of the last 13 months have been over 10 percent and the current rate is still 4.1 times more than the 1.6 percent average rate from 2010>2021. It’s also 1.8 times the national rate.
There is no doubt that the current pricing tidal wave is a significant event in the history of the pet industry, but nobody knows if it will affect pet parents’ spending. Gibbons explains that in his demographic analysis of the annual Consumer Expenditure Survey, which is conducted by the US 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. Supplies is the most affected, as many categories have become commoditized since 2009, 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 a deeper examination is needed. According to Gibbons, inflation is not just a singular event. It is cumulative. Total Pet Prices are up 6.6 percent from 2022, but they are up 17.4 percent from 2021 and 21.8 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 pet food inflation rate is dropping, and Pet Supplies prices are even deflating. It’s just a start. Gibbons is hoping that this trend continues. He, and the rest of the pet industry, will have to wait to see what happens.