Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / Why Stagflation Is Reshaping the Pet Care Industry
Transcript
- Lucas: You know, Luna, I was looking at the latest CPI release from May, and one category really jumped out at me — pet care. Luna: Pet care? Like dog food and vet visits? Lucas: Exactly. The index for pet and pet products and services is up about 8 percent year-over-year. That's more than double the overall inflation rate. And we're seeing this in a period where real GDP growth is barely above 2 percent and the labor force participation rate just hit a 50-year low outside of COVID. Luna: So people are spending more on their pets even as the economy sputters. That's interesting — and a bit counterintuitive. Lucas: And it's a real phenomenon — they're calling it 'petflation.' But the question is whether it's sustainable. If walking through the economy with us has made something click, and you want to keep this show ad-free and independent, consider supporting us at buy me a coffee dot com slash fexingo. Even a few bucks helps cover hosting and research costs. Luna: Yeah, it's a small way to keep us going. So Lucas, back to petflation — what's driving those price increases? Lucas: A couple of things. First, the cost of ingredients — particularly meat and grain — has been elevated due to supply chain disruptions and higher energy costs. That feeds directly into pet food prices. Second, there's a labor shortage in veterinary services, which is pushing up the cost of check-ups and procedures. Luna: And yet people aren't walking away from their pets. The pandemic pet boom created a huge base of owners who are now feeling the pinch. Lucas: Right. According to the American Pet Products Association, about 70 percent of U.S. households own a pet — that's up from 67 percent pre-pandemic. So there's a lot of demand. But what we're seeing is a shift in behavior. Luna: Like what? Are people trading down to cheaper brands? Lucas: Exactly. Premium fresh-food companies like FreshPet are seeing slower growth, while value brands like Purina are holding up. And more pet owners are delaying non-essential vet visits or switching to lower-cost clinics. The average vet visit now costs around $70, up from $55 in 2019. Luna: That's a big jump. So the industry is bifurcating — the premium segment is hurting, but the discount and essential segments are stable. Lucas: And that's playing out in the stock market too. Petco, which runs both services and retail, has seen its margins squeezed. They've been cutting costs, but same-store sales are flat. Meanwhile, generics and private-label pet food are gaining shelf space. Luna: I've noticed that at my local grocery store — the store brand dog food now has a whole endcap display. Luna: So the pet care industry is essentially a microcosm of the broader consumer economy right now: trading down, prioritizing essentials, and cutting back on frills. Lucas: Exactly. And the macro backdrop reinforces that. With the unemployment rate at 4.2 percent and job creation slowing — just 57,000 payrolls added in June — wage growth isn't keeping up with pet inflation. Average hourly earnings are up about 4 percent year-over-year, but pet care costs are up twice that. Luna: That math doesn't work for long. At some point, something has to give. Lucas: And we're already seeing it in adoption rates. Shelters are reporting more animals being surrendered because owners can't afford them. The ASPCA says owner-relinquishment rates are up 15 percent from last year. Luna: That's heartbreaking. So petflation isn't just an economic statistic — it has real welfare consequences. Lucas: Absolutely. And it ties into the broader stagflation narrative. When you have high inflation and slow growth, the most vulnerable households get squeezed first. Pet ownership is often a source of comfort, but it's also a financial commitment. Luna: So what's the outlook? Do you see pet inflation easing anytime soon? Lucas: Not in the near term. The core CPI is still running at 3.1 percent, and the ten-year breakeven inflation rate is at 2.24 percent — that suggests markets expect inflation to stay above the Fed's target for a while. And input costs for pet food aren't coming down fast. Luna: So pet owners are stuck between a rock and a hard place. They love their animals, but their budgets are stretched. Lucas: Right. And one thing that could change is the labor market. If the participation rate continues to fall, that could mean fewer people working, which means less income for pet care. But it could also mean more people are home with their pets, which might keep demand from collapsing entirely. Luna: Interesting paradox. So the pet care industry might be more resilient than some other discretionary sectors, but it's definitely not immune. Lucas: Exactly. And that's the story of stagflation — nothing is completely safe. Even something as beloved as our pets gets caught in the economic crosswinds. Luna: Well, I know my cat is not going to like hearing that his premium salmon pâté might be replaced with store brand. Lucas: Mine neither. But it's a reminder that in this environment, every line item in the household budget is getting scrutinized — including the furry ones.