The outrageous prices of modern high-quality wines

Over at The Real Review, Huon Hook recently noted:

We all have our price-limits, whether or not we stick to a strict budget. But it’s always puzzled me that some people’s price limit for wine never seems to increase ... There is this thing called inflation. You don’t expect your other living expenses to stay the same for years, do you? So why wine?

While this is all true, there is no good reason to expect that any price increases are restricted solely to the value of inflation. This is a topic worth having a quantitative look at, particularly for non-necessity goods, like wine. These products may well have different economic behavior to necessity (or staple) goods (for another example, see: How pharmaceutical companies price their drugs).

The American Association of Wine Economists has now published this report:

Neal D. Hulkower (2020) What can I still afford to drink? AAWE Working Paper 254.

This report discusses the data used for Neal’s Wine-Searcher article on The cost of drinking wine history, in which he reflects on the sorts of wines he used to drink back in the 1960s and 1970s. In particular, Neal comments on the prices of wine back then compared to now, pointing out in no uncertain terms that, across the board, the increase in price has gone way beyond any possible increase due solely to inflation.

Now, Neal is a mathematician, so we can be sure that he kept quantitative records of the prices he paid for the wines back then, and that he has updated those prices based on the recorded annual inflation since then. For those of you who are interested, the U.S. Bureau of Labor Statistics has a graph showing inflation since 1963 (which is reproduced above).

Neal’s report produces a nice set of tables summarizing all of the data, because that is how it is done in this business. He even has available some pictures of his notebooks and the associated wine labels. A mathematical wine enthusiast, to be sure.

However, I am not a mathematician, I am a biologist. I don’t think in terms of numbers — I use pictures, instead. A picture of a set of numbers is a graph. So, here is my picture of Neal’s numbers. Each point represents one of his 92 wines, with the price for the currently available vintage shown vertically, and Neal’s calculation of the price he originally paid plus the adjustment for inflation (cumulative, up to now) horizontally.

Should wines cost the same now as they did way back when, then the points would lie along the pink line. As you can see, very few of them are anywhere near this line. Indeed, they are all well and truly above that line, meaning that their current prices are outrageous compared to what they were half a century ago, relatively speaking. Put another way, high-quality wine is much less affordable these days.

Let's leave aside the 10 pink points for a moment, and look at the 82 other wines. These points are scattered around the black line on the graph (their line of best mathematical fit). This shows that the current price is related to the original price (accounting for 41% of the variation in price). However, it has been multiplied by a factor of 12, plus an across-the-board increase of $40. That is, to get the modern price of these wines, we need to: increase the original price by inflation, add $40, and then multiply by 12. Times have, indeed, changed.

Now, okay, we need to recognize that Neal drank rather well in his youth. These are not bag-in-box wines we are talking about here. Instead, they are the sorts of wines that a wine enthusiast would have considered good, and worthy of a special occasion. Sadly, I was a bit young to have afforded them back then, and I cannot even think about affording them now.

That leaves us with the 10 wines shown in pink, at the top of the graph. These are what are called “unicorns”, these days. Their prices have no connection at all to their original prices. The modern prices are apparently either set by divine providence, or they are whatever prices their producers thought they can get away with. The people who buy these wines have no sense of value-for-money. I am not one of these people, and apparently neither is Neal.

It is now tempting to try the same thing for myself. I do have some records of the prices of my Australian wines from the 1980s — this would give me 40 years’ worth of inflation to examine, for those wines that are still produced. It might make an interesting comparison.