The Rising Cost of Energy

Energy costs are climbing at a pace that outstrips inflation, reshaping household budgets and forcing consumer packaged goods (CPG) companies to rethink their strategies. In 2025, electricity bills across the United States have surged, driven by fuel volatility, infrastructure upgrades, and the rapid expansion of AI-powered data centers. This article explores how rising energy costs affect consumers directly and how CPG companies must adapt to maintain competitiveness and brand loyalty.

Energy Costs and Household Impact

Electricity prices rose by more than 4 percent in the past year, nearly double the overall inflation rate. The average U.S. household now spends close to $2,000 annually on electricity, up from $1,683 in 2022. State-level data shows increases of 5 to 10 percent in most regions, with some states experiencing jumps of more than 12 percent. These increases are not isolated; they reflect structural challenges in the energy sector that ripple through every corner of the economy.

Key drivers include:

- Fuel costs: Natural gas, coal, and oil remain central to U.S. power generation. Global demand and geopolitical tensions have pushed prices higher.

- Infrastructure upgrades: Extreme weather events and aging grids force utilities to invest billions in modernization, costs that are passed on to consumers.

- AI and data centers: Data centers now consume about 4 percent of U.S. electricity, projected to reach 12 percent by 2030. Their rapid expansion is straining supply and raising costs.

- Regional disparities: Households in New England, California, and New York face higher bills due to transmission and distribution challenges.

Consumer Behavior Shifts

Rising energy bills reduce disposable income, reshaping spending priorities. Households are cutting back on discretionary purchases, favoring essentials and value brands. Energy insecurity is growing, especially as federal assistance programs face budget constraints. Consumers are adapting through efficiency measures such as smart thermostats, LED lighting, and off-peak usage strategies, but these solutions only partially offset the financial strain.

For low-income families, the impact is particularly severe. Energy costs are rising faster than wages, forcing difficult trade-offs between utility bills, groceries, and healthcare. This dynamic not only affects household well-being but also shifts demand patterns across industries, including CPG.

CPG Industry Considerations

While consumers feel the immediate pain of higher energy bills, CPG companies face a different but equally pressing challenge: how to manage rising operational costs without losing market share. Energy costs are no longer just an operational line item; they are a strategic variable shaping consumer behavior, brand loyalty, and competitive positioning.

Key considerations for CPG leaders include:

- Margin Pressure: Manufacturing plants face higher electricity and fuel costs, especially in energy-intensive processes like food production, plastics, and packaging. Transportation and logistics costs rise as fuel prices climb, squeezing margins across the value chain. Companies must decide whether to absorb costs, hurting profitability, or pass them on to consumers, risking demand elasticity.

- Packaging and Sustainability: Energy-intensive materials such as aluminum, plastics, and glass see cost spikes, forcing CPG firms to rethink packaging strategies. Sustainability commitments may conflict with cost-control measures, requiring balanced messaging to avoid consumer backlash.

- Pricing Strategy: Price-sensitive shoppers are already stretched by utility bills. Even small increases in CPG product prices can trigger brand switching or private-label adoption. Transparent communication—framing price changes around energy and supply chain realities—can help maintain trust.

- Innovation and Efficiency: Smart factories, automation, and energy-efficient equipment become critical investments to offset rising costs. Companies that adopt renewable energy sourcing can differentiate themselves while reducing long-term exposure to volatility.

- Market Economics: Rising household energy bills reduce disposable income, shifting demand toward essential goods and away from premium or discretionary CPG categories. Firms must model elasticity scenarios to identify which product lines can sustain price increases and which require promotional support to maintain volume.

- Brand Positioning: Brands that acknowledge consumer pain points—such as helping families stretch budgets—can strengthen loyalty. Energy cost narratives can be reframed into value-driven campaigns emphasizing efficiency, affordability, and resilience.

Strategic Takeaways for Consumers

For households, the reality is clear: energy costs will continue to rise in the near term. Efficiency remains the best defense. Home energy audits, insulation upgrades, and smart devices can meaningfully reduce costs. Regional variation matters, with bills in the Northeast and Pacific states rising faster than the national average. Policy decisions around renewables and grid modernization will determine whether relief arrives or strain deepens.

Strategic Takeaways for CPG Leaders

For CPG companies, energy costs are now a strategic variable that must be integrated into planning and execution. Leaders should:

- Invest in energy efficiency and renewable sourcing to reduce exposure to volatility.

- Model demand elasticity to understand consumer response to price changes.

- Communicate transparently about cost drivers to preserve trust and loyalty.

- Balance sustainability commitments with cost-control measures to avoid reputational risk.

- Reframe brand messaging around resilience, affordability, and consumer empowerment.

The Bigger Picture

Energy costs are not just a household issue or an operational challenge for CPG companies. They are a macroeconomic force that influences consumer confidence, disposable income, and long-term growth trajectories. While renewables are expanding, policy uncertainty and supply bottlenecks limit their ability to offset rising demand. Consumers are caught between short-term pain in the form of higher bills and long-term promises of cleaner, more reliable energy systems. Public support remains strong for grid improvements and renewable integration, even as debates over affordability intensify.

Conclusion

The rising cost of energy is a defining challenge of 2025. For consumers, it reshapes household budgets and spending priorities. For CPG companies, it pressures margins, complicates sustainability commitments, and forces strategic recalibration. Both groups must adapt, whether through efficiency measures, transparent communication, or innovation. Energy costs are no longer a background factor—they are central to the economic narrative, influencing behavior, brand loyalty, and competitive positioning.

This article is part of the Behind the Metrics series by Thomas McCorry, Founder and Managing Consultant at Pinnacle Growth Strategies (PGSNY). Based in Rochester, NY, McCorry partners with business leaders to drive clarity, growth, and measurable impact. By modeling market economics and consumer behavior, he helps organizations navigate challenges like rising energy costs with strategic insight and actionable solutions.

TAGS: PGSNY, Thomas McCorry, Rochester, Penfield, Behind the Metrics, energy costs, electricity bills, consumer impact, CPG industry, brand strategy, market economics