John Gibbons, the Pet Business Professor and president of A GPS for Pet Businesses, has been tracking inflation and consumer pet spending. The year-over-year (YOY) increases in the monthly Consumer Price Index (CPI) are larger than he has seen in decades, but the good news is that they are slowing a little. December prices fell -0.3 percent from November. The CPI was still up +6.5 percent vs. 2021, but down from +7.0 percent last month. The grocery price surge also slowed, but they’re still up 11.8 percent over 2021. That’s 10 straight months of double-digit YOY monthly percentage increases. These are the first 10+ percent increases since 1981. As we have seen in recent years, 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 Pet prices were 4.1 percent higher in December 2021 than in December 2020, while the overall CPI was up 7.0 percent. The gap narrowed as Petflation accelerated and reached 96.7 percent of the national rate in June. National inflation has slowed since July, but Petflation increased until slowing in December. It passed the percentational CPI in July and is +10.9 percent in December, 69.1 percent higher than the national rate of 6.5 percent.
Gibbons 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 2022 vs. 2021 which will include Pet Segments and relevant Human spending categories. Plus
- CPI change from the previous month
- Inflation changes for recent years (2020>2021, 2019>2020, 2018>2019)
- Total Inflation for the current month in 2022 vs. 2019
- Average annual YOY inflation rate from 2019 to 2022
- YTD (year-to-date) comparisons this month are now annual comparisons since the data is through December
- Annual numbers for the monthly comparisons No. 2>No. 4 above
In the first graph, Gibbons tracks the monthly change in prices for the 24 months from December 2020 to December 2022. He is using December 2019 as a base number, so he can 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. You can see the similarities and differences in patterns between segments and compare them to the overall U.S. CPI. The current numbers plus those from 12 and 24 months earlier are included. Gibbons has also added and highlighted in pink the month in which the cumulative inflation since 2019 peaked. This will offer some key waypoints for comparisons.
The pandemic hit home in 2020. In December, the national CPI was only +1.4 percent and Pet prices were +0.4 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. However, total Petflation since December 2019 has been above the national 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/August 2022. We can see that 43 percent of the overall 15.5 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 increase in December but 91 percent of the 17.0 percent increase occurred in 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, turned up in August>October to a new record high, then plateaued in November>December.
- 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 has turned up again July>December.
- Veterinary – Inflation has been pretty consistent in Veterinary. Prices turned up in March 2020 and grew through 2021. A pricing surge began in December which put them above the overall CPI. In May prices fell and stabilized in June. Prices turned up again and despite October and December dips they have stayed above the national CPI since July.
- Total Pet – The blending of patterns made Total Pet appear calm. In December 2021, prices surged. The segments had ups and downs March>June but Petflation grew in July>November. It slowed in December but has been ahead of the US CPI since Nov.
Next, Gibbons turns his attention to the YOY inflation rate change for December and compare it to last month, last year and to previous years. Gibbons has included some human categories to put the pet numbers into perspective.
Overall, Prices were -0.3 percent vs. November but were up 6.5 percent vs. December 2021. The Grocery increase is down to 11.8 percent, which is still a big negative but there is some positive news. Six of nine categories had increases from November, but only one was over 0.5 percent. Unfortunately, it was Pet Services. The U.S. CPI rate is slowing and now Petflation is following that lead.
- U.S. CPI – Prices are -0.3 percent from November. The YOY increase is +6.5 percent. It peaked at +9.1 percent in June. The targeted inflation rate is <2 percent so we are still over three times higher than the target. However, a sixth slight decline is good news.
- Pet Food – Prices are +0.4 percent vs. November and 15.2 percent vs. December 21. They are also 29 percent higher than the Food at Home inflation rate – not good news! The YOY increase is being measured against a time when prices were only 1.8 percent above the 2019 level, but that increase is still 4.5 times the pre-pandemic 3.4 percent increase from 2018 to 2019.
- Food at Home – Prices are up 0.3 percent from November. The increase from 2021 is 11.8 percent, down slightly from 12.0 percent last month. Inflation for this category since 2019 is the highest on the chart and is 53 percent more than the national CPI.
- Pets & Supplies – Prices are up only +0.1 percent from November, but that is a big turnaround from -0.4 percent last month. They still have the lowest increase since 2019 but have the third highest monthly increase vs. 2021 for Pet Segments.
- Veterinary Services – December prices fell -0.4 percent from November. They are +8.8 percent from 2021 and trail only Food in the Pet Industry. They also remain second in the increase since 2019 with 18.1 percent compared to Food at Home at 23.7 percent.
- 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 December, prices were stable but +4.1 percent vs. 2021. However, this is still 20 percent below the 2018>2019 rate.
- Pet Services – Inflation slowed in 2020 but began to grow in 2021/2022. December prices were up +0.6 percent from November, the biggest increase on the chart, and +7.5 percent vs. 2021, reaching yet another new record high.
- Haircuts & Other Personal Services – Prices are +0.3 percent from November and +6.3 percent from 2021. They are +16.9 percent since 2019.
- Total Pet – Petflation is strong, 2.7 times the rate of last year and is 69.1 percent ahead of the national CPI. A drop by Veterinary flattened prices in December. Inflation is becoming more balanced, but Food is still the runaway leader. Inflation can cause reduced purchase frequency in Supplies, Services and Veterinary. Super premium food has been generally immune as consumers are used to paying a lot and it is needed every day. We’ll see if consumers are willing to pay the new high prices for food and buy the more discretionary products/services at the same frequency.
Since it is December, YTD Inflation = Annual Inflation. How does 2022 compare to previous years?
The increase from 2021 to 2022 is the biggest for eight of nine categories. The average annual increase since 2019 is 3.6 percent or more for all but Pet Supplies. This is largely due to high prices in 2019 and deflation in 2020 and the first half of 2021.
- U.S. CPI – This year’s increase is 74 percent above the average increase from 2019>2022, but over 3 times the average annual increase from 2018>2021. Inflation is a big problem that started near the end of 2021 and worsened in 2022.
- Pet Food– 10.2 percent inflation in 2022 was second only to 11.1 percent in 2008. It was magnified by deflation in the first half of 2021.
- Food at Home – The 2022 inflation beat the U.S. CPI by 43 percent. You can see the impact of supply chain issues.
- Pets & Pet Supplies – +7.7 percent set a new annual inflation record in 2022. Although the 2021>2022 increase is being measured against a relatively “flat” 2021, it is very significant and just behind Food & Veterinary in the Pet Industry.
- Veterinary Services – +8.8 percent was also a new annual record. Veterinary trails only Food at Home in inflation since 2019 and is the only segment on the chart with a 3+ percent inflation rate each year through the pandemic and recovery.
- Medical Services – Prices went up significantly at the beginning of the pandemic, but inflation slowed in 2021. In 2022 prices surged but have now slowed. However, the inflation rate is still 23 percent higher than pre-pandemic 2018>2019.
- Pet Services – May set a record for the biggest YOY monthly increase in history. Prices fell in June but began to grow again in July, reaching record highs in September>December. In fact, December broke the May increase record. The 2022 annual increase of 6.3 percent is the largest in history. Growing demand with decreased availability is a formula for inflation.
- Haircuts & Personal Services – The services segments, essential and non-essential were hit hardest by the pandemic. After a small decrease in March, prices turned up again. The 2021>2022 increase beat 2020>21 and is double the 2018>2019 increase. Consumers are paying over 15 percent 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 – Food and Supplies, were on a different path. They generally 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 inn April>May, grew in June>October, then flattened in November>December. The Services segments have had ups and downs but are generally inflating. The net is a 2022 Petflation increase vs. 2021 of 8.9 percent, the biggest in history and even ahead of the high 8.0 percent national rate.
Petflation slowed in December, but it is still high. Will it impact spending? Let’s put it into perspective. The 8.9 percent 2022 increase in Total Pet beat the 7.9 percent record set in 2009, and it is about six times more than the 1.5 percent average since then. Pet spending continues to move to higher income groups, but the impact of inflation varies by segment. Supplies is the most affected as many categories are 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 reduction in visit frequency. Spending in the Services segment is driven by higher incomes, so inflation is less impactful. As Gibbons see it, we’ll just have to wait and see continued strong Petflation’s impact on pet spending.