Is Fine Wine Really An Inflation Hedge?

No, it is not.

Disingenuous claims like this make me angry—especially when published by a respectable financial newspaper such as the FT. Even though it’s labeled as Partner Content, you’d still expect some evidence to back the claim that fine wine is a good inflation hedge.

Spoiler alert: it doesn’t.

So, is fine wine really an inflation hedge?

TL;DR answer: No, it is not.

Here’s why.

An inflation hedge is an asset or investment strategy that maintains or increases its real purchasing power as prices rise. In high inflation periods (above 5%), we seek assets that appreciate faster than inflation. Fine wine, despite the claims, doesn’t fit the bill. Let’s break it down.

Fine Wine Returns in Different Inflation Regimes

Since the creation of the Liv-ex indices, UK CPI inflation¹ has averaged 2.8% over the past 20 years, with a median of 2.4%. During this time, inflation remained within the 0–5% range for 87% of the period, representing a relatively stable monetary environment.

Similar to a CFA paper² that challenges the widely held belief among 27% of professional investors that equities hedge against inflation, I analysed fine wine’s performance across four inflation regimes from 2004 to 2024:

• Deflation: inflation < 0%

• Stable Inflation: between 0% and 5%

• High Inflation: between 5% and 10%

• Very High Inflation and Hyperinflation: above 10%

Using inflation data from the Office for National Statistics and wine market data from Liv-ex, I based my analysis on the Liv-ex 1000 index, the broadest fine wine benchmark available.

The results are clear (see the below chart): fine wine performs best in a stable inflationary environment, while any deviation—whether high inflation or deflation—tends to weaken returns.

However, if we look only at this chart, we might conclude that fine wine is an inflation hedge, as it at least preserves its value even in high-inflation regimes.

Real vs. Nominal Returns

However, a common mistake in return analysis is ignoring inflation.

A 2% interest rate on a savings account may seem attractive when inflation is 0%, but if inflation rises to 3%, the real return becomes negative, meaning your money loses purchasing power.

To properly assess performance, we need to adjust nominal returns (raw, unadjusted returns) for inflation. These inflation-adjusted figures are called real returns, as they reflect what an investor actually gains (or loses) once inflation erodes purchasing power.

Real Rate of Return = Nominal Rate of Return (%) - Inflation (%)

In the second chart (see below), returns have been adjusted for inflation using the formula above. Since fine wine data became available, fine wine has not protected investors from inflation. While a longer time series would be ideal, the available data shows that fine wine is not a reliable inflation hedge.

A Second Look: ChatGPT’s Analysis

For an additional perspective, I asked ChatGPT to assess whether the Liv-ex 1000 serves as an inflation hedge, using a different methodology—comparing low vs. high inflation regimes relative to the median inflation over the past 20 years.

The results? Exactly the same.

Fine wine does not reliably hedge against inflation, and its real returns are higher in low-inflation periods, suggesting that it thrives in a stable monetary environment rather than during inflationary spikes.

(If you want to see the results, just send me a note.)

Additionally, Liv-ex returns do not account for storage and insurance costs, which further eat into profits, making fine wine an even weaker inflation hedge than the raw numbers suggest.

Why Is Wine A Poor Inflation Hedge?

Despite the narratives we've been fed, fine wine has proven to be an unreliable inflation hedge. But rather than asking why that is, perhaps the better question is: why has it been believed to be one in the first place?

The misconception likely stems from the fact that wine is a commodity, and commodities are traditionally seen as strong inflation hedges. However, this assumption overlooks key differences that set fine wine apart.

First, fine wine isn’t a raw material. While inflation raises production costs—grapes, labor, barrels, and packaging—the value of a bottle doesn’t necessarily rise in tandem. Inflation also impacts the cost of maintaining wine as an asset. Unlike financial instruments, fine wine requires storage, insurance, and transportation, all of which become more expensive in inflationary environments. These costs erode returns, making wine a weaker hedge than many assume.

Second, fine wine is highly illiquid. It can’t be quickly bought or sold like stocks or commodities, and its wide bid-ask spreads, high transaction costs, and limited trading volumes make price adjustments slower and less responsive to macroeconomic shifts, including inflation.

Finally, fine wine is a luxury good, not an essential asset. Traditional inflation hedges—gold, real estate, and raw commodities—hold intrinsic value or serve a fundamental need. Gold is a reserve asset, commodities are raw materials, and real estate provides shelter. Fine wine, however, is discretionary, meaning demand fluctuates more in economic downturns. Unlike essentials, wine consumption can be postponed or scaled back when inflation squeezes disposable income.

Ultimately, while fine wine has proven to be a long-term store of wealth, it is not a reliable hedge against inflation.

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