John Gibbons, the Pet Business Professor and president of A GPS for Pet Businesses, reports that inflation continues to make headlines. There have been year over year increases in the monthly Consumer Price Index (CPI) larger than we have seen in decades. In May, the CPI was up 8.6 percent vs 2021, beating the previous high of 8.5 percent in March. Food at Home (groceries) prices continue to surge, up 11.9 percent over 2021. That’s three 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%. The gap narrowed in March and April as Petflation accelerated to 97.6 percent of the national rate. In May, Inflation in the overall market became stronger. However, thanks to a price drop in Veterinary, Petflation stabilized, and the gap widened – 8.1 percent for Pet vs. 8.6 percent for 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 which 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
- 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 May 2020 to May 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 yr-end numbers for 2020 and 2021.This will give you some key waypoints for comparisons. (Note: the April Peak for Veterinary is also highlighted.)
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The pandemic really hit home in April/May. Even the national CPI deflated for 2 months, but not the Services segments. There are 2 different patterns between the Services and the Products segments. Veterinary and Services prices generally inflated after mid-2020, a pattern 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 Veterinary dropped in May. Supplies prices have essentially plateaued while inflation in Food is accelerating. Here are some things to note:
- U.S. CPI – The inflation rate was below 2% through 2020. It turned up in January 2021 and continued to grow through May 2022. 65 percent of the overall 13.7 percent increase since 2019 occurred in the last 12 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. Ninety percent of the 8.4 percent increase has happened since November.
- 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 have essentially plateaued at this new, higher level since February.
- Pet Services – Normally inflation is 2+%. 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 Jan>Apr. Inflation got stronger in 2022, slowed a little in March, turned up in April and then slowed a bit in May – basically an every other month pattern
- 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 with total inflation since 2019 reaching +15.5 percent in April. In May prices fell but they are still ahead of the National CPI.
- Total Pet – The blending of the segment patterns made the Pet Industry appear calm compared to the overall market. That ended in December 2021 as prices surged in all segments. In May inflation is slowing in all but Food.
Next, we’ll turn our attention to the Year over Year inflation rate change for the month of May 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.
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Overall, Prices vs 2021 were up 8.6 percent vs. 2021 with the Grocery increase now hitting 11.9 percent. There are some small positives. Only three of nine categories had increases over 1 percent from last month, the same as April but down from 5 percent in March. And Veterinary Services prices actually fell 1.0 percent from April. There is a little hope.
- U.S. CPI – Prices are up 1.1 percent from last month. In April the increase was 0.6%. May Inflation was +8.6 percent . The targeted rate is <2 percent . We remain four-plus times higher than the “target.” Inflation is getting worse, and it accelerated again in May.
- Pet Food – Prices are up 1.6 percent vs. April and 9.1 percent vs. May 2021. The YOY increase is being measured against a deflationary year, but that increase is more than triple the pre-pandemic 2.8 percent increase from 2018 to 2019.
- Food at Home – Prices are up 1.3 percent from March. The increase from 2021 is 11.9 percent, which is the largest increase in any month since 12.3 percent in April 1979 and the largest May monthly increase since 16.6 percent in 1974. Inflation for this category since 2019 is the highest of any category on the chart and is 28 percent more than the national CPI.
- Pets & Supplies – Prices grew 0.1 percent from April but they are slightly below March’s record high. They now have the lowest monthly increase over 2021 of any industry segment, and the lowest increase since 2019.
- Veterinary Services – May prices fell 1.0 percent from April. They are up 7.4 percent from 2021 but now trail Pet Food in the Pet Industry. They also lost the lead in the increase since 2019 with 16.9 percent compared to Food at home at 18.1 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. It appears to be turning strongly up again in 2022.
- Pet Services – Inflation slowed in 2020 but began to grow in 2021 and 2022. Prices are up 0.5 percent from April and 7.4 percent from May 2021, beating the record 6.5 percent increase in February and double the rate of 2019 and 2020. However, we should note that a big part of the record May lift was due to a 0.9 percent drop in prices from April to May 2021.
- Haircuts & Other Personal Services – Prices are +0.5 percent from April and 6.2 percent from 2021. They are +15.6 percent since 2019.
- Total Pet – Inflation is strong and is three-plus times the rate of last year. Veterinary prices fell and Supplies prices plateaued which helped keep overall Petflation steady at +8.1 percent. 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?
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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 4 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 19.5 percent. You can see the impact of supply chain issues.
- Pets & Pet Supplies – Prices have plateaued at a new record level since February. Although the 2021>22 increase is being measured against a deflationary 2021, it is very significant and second 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. No matter what, just charge more.
- Medical Services – Prices went up significantly at the beginning of the pandemic, but the rate has slowed since and has now essentially returned to near pre-pandemic levels.
- Pet Services – February set a record for the biggest year over year monthly increase in history. The rate slowed in March, turned up again in April then set a new record in May. The current YTD increase of 6.1 percent remains second only to 6.4 percent in 2009. Demand has grown for Pet Services while the availability has decreased, a formula for inflation.
- Haircuts & Personal Services – The services segments, essential & non-essential were hit hardest by the pandemic. After a small decrease in March, prices turned up in April/May. The YTD rate is now down slightly from 2020>21 but still 79 percent more than 2018>19. Consumers are paying 14.9% more than in 2019. This usually reduces the frequency.
- Total Pet – When we first looked at the pandemic impact on Petflation. We saw basically two different patterns. 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 as Supplies pricing stabilized and Veterinary prices dropped. The net was a YTD CPI increase vs. 2021 for Total Petflation of 6.7 percent; 82 percent of the extraordinarily high 8.2 percent overall rate. It was only 72.5 percent of the National rate in March.
Inflation is strong in the Pet Market. Will it impact spending? Let’s put it into perspective. The 6.7 percent YTD increase in Total Pet is far below the 9.6 percent record set in 2009 but four 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 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. Hopefully, Supplies prices will stabilize and begin to deflate. Eliminating the special tariffs implemented in September 2018 would be a big help. However, we’ll just have to wait and see the impact of the continued strong Petflation.