Research
Energy shock waves: US food inflation risk in 2026-2027
Rising energy costs are feeding through every layer of the US food system, from fertilizers and farm inputs to packaging and transport. This is setting up a new phase of cost push inflation into 2027. But unlike the last inflationary cycle, consumers are more financially stretched, with increasingly polarized spending patterns. This is limiting food companies’ ability to pass through higher costs, shifting more pressure onto margins and product mix.
Current geopolitical and energy market dynamics point to elevated inflation risk across the US food system. We expect mid-single-digit food inflation over the next 12 to 18 months, with baseline monthly ranges of 4% to 6% possible through 2027. The near-term catalyst is energy-driven cost pressure tied to the closure of the Strait of Hormuz, which indirectly pushes up fertilizer, packaging, and logistical costs.
Due to uncertainty around the timing and extent of cost pass-through, we express our inflation outlook as ranges. Hedges and longer-term contracts can delay when higher costs show up on shelves and in restaurants, so inflation not realized in one year often rolls into the next as contracts reset and inventories turn.
This analysis draws on our 2021 to 2022 inflation cost-stack work, “Project Radar,” which showed that food inflation can stay elevated even after commodity prices cool, and that pressures rotate across cost buckets, creating a more complex margin environment than a simple commodities cycle narrative suggests.
Against this backdrop, we expect US food inflation to enter a higher-volatility phase this year, led by energy markets and reinforced by fertilizer, packaging, and logistics costs. Energy matters not only because it raises direct operating costs, but because it lifts the cost floor across the entire system, from farm inputs to processing, cold chain, and distribution. This reinforces a cost-push dynamic that can persist as contracts reset and hedges roll off.
The key difference versus our 2021 to 2022 analysis is the consumer. With consumers having less financial cushion and increasingly bifurcated spending patterns – often described as “K-shaped” – companies’ ability to pass through rising costs is constrained. Lower- and middle-income households are more price-sensitive, accelerating trading down, private label substitution, smaller basket sizes, fewer discretionary add-ons, and a “barbell” shift toward trusted value or clearly differentiated premium products and brands.
For food and beverage companies, the main risks through this inflationary cycle are margin compression from constrained pricing power, volume losses that accelerate capacity utilization challenges, greater earnings volatility as input costs swing and timing mismatches emerge, and widening performance dispersion across channels, brand tiers, and income cohorts.
For companies operating in this environment, the priorities are clear: tighter risk management, stronger supply security, cost reduction, and disciplined pricing. Simplifying operations to build supply chain resilience is also critical. At the same time, companies may need to selectively accept some margin erosion to protect volumes, while continuously reassessing price elasticity to maximize profitability.