John Gibbons, the Pet Business Professor and president of A GPS for Pet Businesses, recently released an updated report on inflation and its impact on the pet industry. The year-over-year (YOY) increases in the monthly Consumer Price Index (CPI) are larger than we have seen in decades but are slowing a little. February prices grew 0.6 percent from January and the CPI was still up +6.0 percent vs. 2022, but down from +6.4 percent last month. The grocery price surge also slowed but it’s still up 10.2 percent over 2022. That’s 12 straight months of double-digit YOY monthly percentage increases. These are the first 10+ percent increases since 1981. As Gibbons has 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 2022. National inflation has slowed since July, but Petflation has generally increased. It passed the National CPI in July and is +10.9 percent in February, 81.7 percent higher than the national rate of 6.0 percent. Gibbons will look deeper into the numbers, with this and future reports including:
- 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 that will include pet segments and relevant human spending categories. Plus:
- CPI change from the previous month.
- Inflation changes for recent years (2022>2021, 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>4 above
In his first graph, Gibbons will track the monthly change in prices for the 24 months from February 2021 to February 2023. He will use 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 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 yearend and those from 12 and 24 months earlier are included. This will give you some key waypoints. In February Supplies passed their old November pricing high so all segments are now at their cumulative inflation peak.
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The pandemic hit home in 2020. In February 2021, the national CPI was only +2.4 percent and pet prices were +1.4 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. In January>February, all inflated and Total Petflation since December 2019 has been above the U.S. 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>December 2022. Prices turned up again in January>February but 40 percent of the overall 18.6 percent increase since 2019 happened from January>June 2022.
- Pet Food – Prices stayed generally below December 2019 levels from April 2020 > September 2021, when they turned up. There was a sharp lift in December 2021, and it has continued, with 91 percent of the 18.6 percent increase occurring since 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, then turned up in August>October to a new record high. Prices stabilized in November>December but turned up again in January and reached a new record high in February.
- 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 March>June. It has turned up in July>February but again fell behind Food so it is in third place among Pet Industry Segments.
- 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 briefly fall below the National CPI. However, prices turned up again and, despite October and December dips, they have stayed above the National CPI since July and set new records in January and February.
- 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 then turned up again in January and February as all segments increased prices. It has been ahead of the cumulative U.S. CPI on the 2019>2023 chart since November.
Next, Gibbons turns his attention to the YOY inflation rate change for February and compare it to last month, last year and to previous years. He also added a new measurement, showing the total inflation from 2021 to 2023. Although national inflation is slowing, it’s not for Pet. This will allow you to see the cumulative amount of the current pricing surge. You can compare the inflation rates of 22>23 to 21>22 but also see how much of the total inflation since 2019 came from the ongoing trauma. Gibbons has included some human categories to put the pet numbers into perspective.
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Overall, Prices were +0.6 percent vs. January and were up 6.0 percent vs. February 2022. The Grocery increase is down to 10.2 percent but is still a big negative. Prices often rise early in the year so it’s not surprising that eight of nine categories had increased prices from last month. Seven of the increases were 0.5+ percent. Last month there were five but only one in December. Three of the increases were over 1.0 percent, all from the Pet Industry – Total Pet: 1.5 percent; Pet Food: 1.2 percent; Veterinary: 2.5 percent. The overall national YOY monthly inflation rate is slightly down from January, but it is significantly down vs. the 2021>2022 rate. Three categories – Pet Supplies, Medical Services and Haircuts – have a similar pattern. In all other categories the 2022>2023 inflation rate is higher than the 2021>2022 rate and is the highest rate in any year since 2019. In the 2021>2023 measurement shows that over 70 percent of the cumulative inflation since 2019 occurred in the current surge for all categories but Veterinary, Medical Services and Haircuts and Personal Services. The Pet Supplies Segment has a unique situation. The 2021>2023 inflation surge provided 116 percent of the overall inflation since 2019. This happened because Pet Supplies prices strongly deflated in 2020>2021.
- U.S. CPI– Prices are +0.6 percent from January. The YOY increase is down to +6.0 percent. It peaked at +9.1 percent back in June. The targeted inflation rate is <2 percent so we are still over three times higher than the target. However, an 8th straight slight decline is good news. It is also good that the current inflation rate is below 2021>2022 but the 2021>2023 rate is 14.4 percent, which is 76 percent of total inflation since 2019. How many households “broke even” by increasing their income by over 14 percent in 2 years?
- Pet Food– Prices are +1.2 percent vs. January and 15.2 percent vs. February 2022. They are also 49 percent higher than the Food at Home inflation rate, which is not good news. The YOY increase is being measured against a time when prices were only 3.0 percent above the 2019 level, but that increase is still an incredible 8.9 times the pre-pandemic 1.7 percent increase from 2018 to 2019. The 2021>2023 inflation surge generated 91 percent of the total 21.3 percent inflation since 2019.
- Food at Home – Prices are up 0.3 percent from January. The monthly YOY increase is 10.2 percent, down slightly from 11.3 percent in January but considerably lower than July>September 2022 when it exceeded 13 percent. The 25.0 percent inflation for this category since 2019 is 32 percent more than the national CPI but now second to Veterinary. Since 2019, 79 percent of the inflation occurred from 2021>2023 but the pattern is different from the national CPI. 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 tsunami.
- Pets & Supplies – Prices are up +0.5 percent from January. That’s three straight monthly increases after a dip in November. They still have the lowest increase since 2019 and now have fallen to last place in terms of the monthly increase vs. last year for pet segments. As Gibbons noted earlier, prices deflated in 2020>2021 so the 2021>2023 inflation surge accounted for 100+ percent of the total price increase since 2019. They reached an all-time high in October then prices deflated. However, three straight months of increases has pushed them to a new record high in February.
- Veterinary Services – Prices are +2.5 percent from January. They are +10.3 percent from 2022 and are in second place behind Food in the pet industry. However, they are now the leader in the increase since 2019 with 26.4 percent compared to Food at home at 25.0% percent For Veterinary Services, relatively high annual inflation is the norm. The rate did increase during the current surge but only 61 percent of the four years worth of inflation occurred in the two 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 2020>2021. In February, prices fell -0.5 percent from January and were +2.1 percent vs. 2022, the lowest rate since 2019. 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 2021/2022. February 2023 prices were up +0.5 percent from January and +7.5 percent vs. 2022. The rate has slowed but prices still reached a new all-time high. Their inflation is tied to the current surge as 73 percent of total since 2019 occurred from 2021>2023.
- Haircuts & Other Personal Services – Prices are +0.6 percent from January and +4.8 percent from 2022, but this is only the third highest rate since 2019. Inflation began to grow in 2020>2021 and just 51 percent of the inflation from 2019>2023 happened from 2021>2023.
- Total Pet– Petflation is double the rate of last year, and it’s 81.7 percent ahead of the National CPI and the +10.9 percent is also the highest February rate in history. Prices increased in all segments vs. January so Total Pet was up 0.5 percent, which was expected. A January>February increase in Petflation has happened in 25 of the last 26 years. Food is the runaway leader, but the 2022>2023 inflation rate for all but Supplies exceeds the 2021>2022 rate. Pet Food has generally been immune as pet parents are used to paying a lot. However, inflation can cause reduced purchase frequency in the other Segments.
Now, let’s look at the YTD numbers.
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The increase from 2022 to 2023 is the biggest for five of nine categories. The 2022>2023 rate for three categories is essentially tied with 2021>2022. Only the Total CPI is significantly down from 2021>2022. The average annual increase since 2019 is 4.4 percent or more for all but Medical Services (3.3 percent) and Pet Supplies (2.7 percent).
- U.S. CPI – The current increase is down 19.5 percent from 2021>2022 but is still 41 percent more than the average increase from 2019>2023, and more than three times the average annual increase from 2018>2021. Since 2019, 76 percent of the 18.9 percent inflation occurred from 2021>2023. Inflation is a big problem that started recently.
- Pet Food – Inflation continues to grow stronger. Deflation in the first half of 2021 kept YTD prices low then prices surged in 2022. Since 2019, 89.5 percent of inflation occurred from 2021>2023.
- Food at Home – The 2023 YTD inflation rate has slowed slightly but still beat the U.S. CPI by 74 percent. You can see the impact of supply chain issues on the Grocery category as 79 percent of inflation since 2019 occurred from 2021>2023.
- Pets & Pet Supplies – While the inflation rate has stabilized at about 6.2 percent, prices reached a record high in February. Prices deflated significantly in 2021, which helped to create a very unique situation. Prices are up 11.3 percent from 2019 but 114 percent of this increase happened from 2021>2023. Prices are up 12.9 percent from their 2021 bottom.
- Veterinary Services – Passed Food at Home for the top spot in inflation since 2019. They are the only segments on the chart with a 5+ percent average annual inflation rate since 2019. However, Veterinary is unique. They are the only category in which the inflation rate grew steadily every year until 2023 when it has almost doubled.
- Medical Services – Prices went up significantly at the beginning of the pandemic, but inflation slowed in 2021. In 2022>2023, inflation has stabilized at a rate only 8 percent higher than the pre-pandemic 2018>19 rate.
- Pet Services – May 2022 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>February. The January increase of 8.4 percent was the largest in history. YTD February is down slightly to 8.0 percent. 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 2022, prices turned up again. The YTD rate is 11 percent below the 2020>2021 peak but is 51 percent more than 2018>2019. Consumers are paying 20 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 April>May, grew June>October, fell in November, then rose again December>February. The Services segments have had ups and downs but are generally inflating. The net is a YTD Petflation rate vs. 2022 of 10.8 percent, and 74.2 percent more than the national rate. In March 2022, it was only 72.5 percent of the CPI.
Petflation is growing stronger. Let’s put the numbers into perspective. The 10.9 percent February 2023 increase in Total Petflation is below the record 12.0 percent set in November, but it is still a record for the month. We’ve also now had seven consecutive months over 10 percent. The last time that Petflation exceeded 10 percent was 10.3 percent in 2009. The current rate is more than seven times the 1.5 percent average rate from 2010>2021. There is no doubt that the current pricing tsunami is a significant event in the history of the pet industry, but will it affect pet parent spending. In his demographic analysis of the annual Consumer Expenditure Survey that is conducted by the U.S. BLS with help from personnel from the Census Bureau, Gibbons 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 since 2009 many categories have become commoditized, 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 driven by higher incomes, so inflation is less impactful.
According to Gibbons, there is another fact that he believes is relevant to the spending question. The U.S. BLS recently decided to update the CPI annually rather than every two years based upon each expenditure’s share of total expenditures. Gibbons worked with them to update the CPI of his retail aggregates. During these conversations, Gibbons discovered that Pet expenditures in 2021 had one of the biggest share gains of any group. Apparently, pet parents are reallocating their money to prioritize their furbaby’s needs. This is not unexpected. Gibbons will continue to monitor upcoming data to see if this behavior is impacted by continued high inflation.