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), which are larger than we have seen in decades. In June, the CPI was up 9.1 percent vs. 2021, beating the previous high of 8.6 percent in May. Food at Home (groceries) prices continue to surge, up 12.2 percent over 2021. That’s four 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 fluctuations can affect consumer pet spending, especially in the more discretionary pet segments. With that in mind, 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 in March & April as Petflation accelerated to 97.6 percent of the national rate. In May, Petflation stabilized and the gap widened a bit to 94 percent. However, inflation in the Products segments surged in June and the gap decreased to 96.7 percent, again virtually equal to the national rate. Let’s look a little deeper. 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 (20>21, 19>20, 18>19)
- Total Inflation for the current month in 2022 vs. 2019
- Average annual year-over-year inflation rate from 2019 to 2022
- YTD comparisons
- YTD numbers for the monthly comparisons of the above No. 2>No. 4
In the first graph, we will track the monthly change in prices for the 24 months from June 2020 to June 2022. We will use December 2019 as a base number in this and future reports 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 those from 12 and 24 months earlier are included as are the year-end numbers for 2020 and 2021.This will give you some key waypoints for comparisons. (Note: the April peak for Veterinary is also highlighted.)
The pandemic hit home in early 2020. The national CPI was only +0.3 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, inflation took off, but the patterns became mixed. Services paused in March and fell in June. Veterinary dropped in May. Prices for Supplies plateaued then surged in June while inflation in Food is accelerating. Here are some things to note:
- U.S. CPI – The inflation rate was below 2 percent through 2020. It turned up in January 2021 and continued to grow through June 2022; 44 percent of the overall 15.3 percent increase since 2019 occurred in the last six months.
- 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 81 percent of the 9.8 percent increase has happened since January.
- Pet Supplies – Remember that Supplies prices were high in December 2019 due to the added tariffs. They 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, reaching 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, slowed a little in March, turned up in April but then prices fell in June.
- 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. Prices peaked at +15.5 percent in April. In May prices fell and stabilized in June which pushed them below 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. In June inflation is slowing in Services but growing in Products.
Next, we’ll turn our attention to the Year over Year inflation rate change for the month of June and compare it to last month, last year and to previous years. We’ve added some human categories to put the pet numbers into perspective.
Overall, Prices vs 2021 were up 9.1 percent vs. 2021 with the Grocery increase now hitting 12.2 percent. There are some small positives. Only three of nin categories had increases over 1 percent from last month, the same as April and May, but down from five in March. And Non-Veterinary Services prices actually fell 0.7 percent from May; there is a little hope.
- U.S. CPI – Prices are up 1.4 percent from last month. In May the increase was 1.1 percent. June inflation was +9.1 percent. The targeted rate is less than 2 percent. We remain four-plus times higher than the “target.” Inflation is getting worse, and it accelerated again in June.
- Pet Food – Prices are up 1.3 percent vs. May and 10.3 percent vs. June 2021. The YOY increase is being measured against a deflationary year, but that increase is almost four times the pre-pandemic 2.8 percent increase from 2018 to 2019.
- Food at Home – Prices are up 1.0 percent from May. The increase from 2021 is 12.2 percent, which is the largest increase in any month since 12.3 percent in April 1979 and the largest June monthly increase since 15.1 percent in 1974. Inflation for this category since 2019 is the highest of any category on the chart and is 25 percent more than the national CPI.
- Pets & Supplies – Prices grew 0.9 percent from May and set a new record high. They now have the second-highest monthly increase over 2021 of any industry segment, but still have the lowest increase since 2019.
- Veterinary Services – June prices grew 0.2 percent from May. They are up 7.5 percent from 2021 but now trail Food & Supplies in the Pet Industry. They also remain second in the increase since 2019 with 16.9 percent compared to Food at Home at 19.7 percent.
- Medical Services – Prices sharply increased at the start of the pandemic in 2020 but then inflation slowed and returned to a more normal rate in 2021. In 2022 prices are turning sharply up, +71 percent vs. the pre-pandemic 2018>2019 rate.
- Pet Services – Inflation slowed in 2020 but began to grow in 2021/2022. Prices are -0.7 percent from May and +6.3 percent vss 2021. Prices are now below April and appear to be stabilizing, at least for a short period.
- Haircuts & Other Personal Services – Prices are +0.3 percent from May and +6.3 percent from 2021. They are +15.8 percent since 2019.
- Total Pet – Inflation is strong and is three-plus times the rate of last year. Service segments prices are becoming stable while the Product segments prices are growing. This is driving Petflation up. In the past, inflation has caused a reduction in the frequency of purchase 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. 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 as they did in the past.
Now here’s a look at year-to-date numbers. How does 2022 compare to previous years, so far?
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 2021.
- U.S. CPI – The current increase is 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 2021.
- Food at Home – The 2022 YTD inflation beat the U.S. CPI by 22.9 percent. You can see 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 tied for first with 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. No matter what, just charge more.
- 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 36 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 June YTD increase of 6.1 percent is 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 YTD rate is now equal to 2020>2021 but still 93 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 yearend. In 2022, everything changed as Food and Supplies prices turned sharply up. Food prices continued to climb. Pricing for Supplies stabilized then grew in June. The Services segments have had decreases but are becoming more stable. The net was a June YTD CPI increase vs. 2021 for Total Petflation of 7.1 percent, which is 85.5 percent of the extraordinarily high 8.3 percent overall rate. It was only 72.5 percent in March.
Inflation is strong in the pet market. Will it impact spending?
Let’s put it into perspective. The 7.1 percent June YTD increase in Total Pet is far below the 8.9 percent record set in 2009 but four-plus 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 category as many others are price sensitive. Super premium food has become widespread because the perceived value has grown. Higher prices 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.