John Gibbons, the Pet Business Professor and president of A GPS for Pet Businesses, has been examining the year-over-year increases in the monthly Consumer Price Index (CPI). July prices fell -0.01 percent from June, but the CPI was still up +8.5 percent vs. 2021, down from +9.1 percent last month. Food at Home (groceries) prices continue to surge, up 13.1 percent over 2021. That’s five straight months of double-digit, year-over-year monthly percentage increases.
These are the first 10+ percent increases since 1981. As we have seen in recent years, even minor price fluctuations can affect consumer pet spending, especially in the more discretionary pet segments, so we will continue to publish monthly reports to track Petflation as it evolves in the marketplace.
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. In July, national inflation slowed a bit to 8.5 percent, but Petflation accelerated to 9.1 percent. This latest surge indicates that we should look a little 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 that will include pet segments and relevant human spending categories. Plus:
- CPI change from the previous month
- Inflation changes for recent years (2020>21, 2019>20, 2018>19)
- Total Inflation for the current month in 2022 vs. 2019
- Average annual year-over-year inflation rate from 2019 to 2022
- Year-to-Date (YTD) comparisons.
- YTD numbers for the monthly comparisons #2>4 above
In the first graph, Gibbons will track the monthly change in prices for the 24 months from July 2020 to July 2022. He uses December 2019 as a base number in this and future reports, enabling him 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. The chart reveals the similarities and differences in patterns between segments, and it compares them to the overall U.S. CPI. The current numbers, plus those from 12 and 24 months earlier, are included as are the year-end numbers for 2020 and 2021. (Note: the Old April Peak for Veterinary is also highlighted.)
The pandemic hit home in early 2020. In July, the national CPI was only +0.8 percent and pet prices deflated until August. There are two different patterns between the Services and the Products segments. Veterinary and Services prices generally inflated after mid-2020, similar to the overall CPI. 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 this month. While the increase in Supplies was minimal, prices in all segments increased in July.
- 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 2022. According to Gibbons, 44 percent of the overall 15.3 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 86 percent of the 11.1 percent increase has happened since January.
- 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, when they turned sharply up reaching a new all-time pricing high in January, beating the 2009 record. Prices plateaued from February to May but turned up in June. The CPI flattened in July but at a new record high.
- 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 got stronger in 2022 but has been on a rollercoaster since March, turning up again in July.
- Veterinary – Inflation has been generally consistent in Veterinary. Prices began rising in March 2020 and increased through 2021. Then a pricing surge began in December which pushed them past the overall CPI. In May prices fell and stabilized in June. July saw another increase which again put them above the National CPI.
- Total Pet – The blending of the different segment patterns made the Pet Industry appear calm. That ended in December 2021 as prices surged in all segments. After mixed up and downs, in July inflation grew in all segments.
Next, we’ll turn our attention to the year-over-year inflation rate change for the month of July and compare it to last month, last year and to previous years. Gibbons added some human categories to put the pet numbers into perspective.
Overall, prices were basically flat vs June but were up 8.5 percent vs. July 2021. The Grocery increase is now 13.1 percent, which is a big negative but there is another small positive. Only two of nine categories had increases over 1 percent from last month, down from five in March. With the slight drop in the National CPI vs. last month, there is hope for the future.
- U.S. CPI – Prices are down 0.01 percent from June. The year-over-year increase is +8.5 percent, down from +9.1 percent in June. The targeted inflation rate is <2 percent so we are still four times higher than the target. However, the slight decline is a good start.
- Pet Food– Prices are +1.2 percent vs. June and 10.9 percent vs. July 2021. The year-over-year increase is being measured against a time when prices were at 2019 levels, but that increase is almost three times the pre-pandemic 3.7 percent increase from 2018 to 2019.
- Food at Home – Prices are up 1.4 percent from June. The increase from 2021 is 13.1 percent, which is the largest increase in any month since 13.6 percent in March 1979 and the largest July monthly increase since 13.9 percent in 1974. Inflation for this category since 2019 is the highest of any category on the chart and is 38 percent more than the national CPI.
- Pets & Supplies – Prices grew only 0.03 percent from June, but they still set a new record high. They fell from second to third in terms of monthly increase over 2021 for industry segments and still have the lowest increase since 2019.
- Veterinary Services – July prices grew 0.8 percent from June. They are up +9.3 percent from 2021 and now trail only Food in the pet industry. They also remain second in the increase since 2019 with 17.1 percent compared to Food at home at 21.4 percent.
- Medical Services – Prices sharply increased at the start of the pandemic in 2020 but then inflation slowed and fell to a more normal rate in 2021. In 2022, prices are turning sharply up again, +55 percent vs. the pre-pandemic 2018>2019 rate.
- Pet Services – Inflation slowed in 2020 but began to grow in 2021/2022. Prices are +0.3 percent from June and +5.6 percent vs. 2021. Prices are still below the May peak but have turned up again after falling in June.
- Haircuts & Other Personal Services – Prices are +0.2 percent from June and +4.3 percent from 2021. They are +15.4 percent since 2019.
- Total Pet – Petflation is strong, three times the rate of last year. It is now ahead of the National CPI. Prices in all segments increased in July, but inflation is primarily being driven by Food and Veterinary. Inflation can cause reduced purchase frequency in Supplies, Services and Veterinary. Super premium food has been generally immune as consumers are used to paying big bucks, and it is needed every day.
The next char looks at year-to-date numbers. How does 2022 compare to previous years?
The increase from 2021 to 2022 is the biggest for seven of nine categories. The average annual increase since 2019 is over 3 percent for all but Pet Food and Pet Supplies. This is due to deflation in the first half of 2021.
- U.S. CPI – The current increase is almost double the average increase from 2019>2022, but over four times the average annual increase from 2018>2021. Inflation is a big problem that started recently.
- Pet Food – Inflation is growing stronger, especially after deflation in the first half of 2021.
- Food at Home – The 2022 year-to-date inflation beat the U.S. CPI by 27.7 percent. This shows the impact of supply chain issues.
- Pets & Pet Supplies – Prices have been at record levels since January. Although the 2021>2022 increase is being measured against a deflationary 2021, it is significant and is second only to Veterinary in the pet industry segments.
- Veterinary Services – Has the most inflation since 2019 and is the only segment on the chart with a 3+ percent inflation rate each year throughout the pandemic and recovery.
- Medical Services – Prices went up significantly at the beginning of the pandemic, but inflation slowed in 2021. In 2022, there is another pricing surge as the inflation rate is 38 percent higher than pre-pandemic 2018>2019.
- Pet Services – February and May set records for the biggest year over year monthly increases in history. Prices seem to be becoming more stable, but the current July year-to-date increase of 6.0 percent is still the largest in history. Demand has grown for Pet Services while the availability has decreased, 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 year-to-date rate is now equal to 2020>2021 but still 96 percent more than 2018>2019. Consumers are paying 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 we neared year-end. In 2022, everything changed as Food and Supplies prices turned sharply up. Food prices continued to climb. Supplies pricing stabilized then grew in June/July. The Services segments have had some ups and downs, but both are inflating in July. The net was a July year-to-date CPI increase vs. 2021 for Total Petflation of 7.4 percent, 89.2 percent of the high 8.3 percent national rate. It was only 72.5 percent in March.
Petflation is growing stronger. Will it impact spending? Let’s put it into perspective. The 7.4 percent July year-to-date increase in Total Pet is far below the 8.9 percent record set in 2009 but five times larger than the 1.5 percent average since then. Although pet spending continues to move to higher income groups, 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. We’ll just have to wait and see the overall impact on Pet Spending of the continued strong Petflation.