Today served as a confirmation of some fears I've had about the liquor industry's future; at least as it impacts people's pocketbooks. Economists call it "wholesale inflation" but that's just an easy way to explain why it'll cost more money to make money. What that means for the average consumer will be generally higher prices for alcohol, with some sectors seeing larger prices dependent on their core costs.
The most core cost of all is oil. Oil spans all layers of the liquor industry, from the heating of the stills to the trucks and planes that get that bottle in your hands. Oil's not getting any cheaper these days, and companies are realizing that they can no longer "eat" the cost of oil to keep prices lower. The end result will be an increase in price for all forms of liquor regardless of their area.
The second part of inflation deals with the weakness of the US dollar to the Euro. Right now one Euro will cost you 1.30 in US Dollars. Five years ago a euro cost less than a dollar. In 2004, the Euro stabilized at around its current price and importers are starting to realize that the dollar will not drop anytime soon. As a result you'll see higher prices on anything originating from Europe: Scotch and Irish whiskies, gin, grappa, imported vodka, and most liqueurs. French wines and non-domestic beers won't suffer the same increases for reasons I'll explain later.
Whereas oil does not end up in the final product you drink, some raw ingredients are necessary in the production of alcohol... like corn (maize for the non-US folks). America is converting massive quantities of corn into ethanol these days. The problem for the liquor industry is that we aren't drinking all of it - a lot of it ends up in our cars. This is increasing the core cost of corn and affecting prices on everything from Coca-Cola to tortillas in Mexico. This relative scarcity of corn will lead to price increases in any distilled spirits involving corn, and in the US that's Bourbon. Fortunately that cost impact is slightly delayed since the direct cost won't show up for another few years. Bourbon has to age so the high-cost white lightning coming off those stills today has to mellow in some oak for a few years before we'll get the sticker shock. However, distilleries will try to defray production costs today in the bottles they're shipping now. The result is slightly costlier bottles now for less of a sticker shock in a few years. Regardless, it means higher prices even for your domestic whiskey. So if you were hoping to avoid a weak dollar's impact on your booze; Bourbon is not your savior.
There's also a double impact in Scotch beyond the exchange rate. Most Scotch bottled today has age statements that place it in the early 1990s. That is to say that a bottle of Macallan 12 is made from casks filled in 1994. In general, the early 1990s were a horrible time for Scotch with many distilleries closing and the remaining ones selling off their stock to make ends meet. Now in 2007 these distilleries have a low level of stock and therefore an increased scarcity of product necessary to bottle their Scotch today.
Depressed yet? It's not all doom and gloom. The best estimate of distilled product inflation this year will be around 5%. That's steep compared to the last few years, but pretty tame if you normalize it over the last decade. A kind ecomonmist might call it a "market correction".
There are some markets that will not see price rises because of mitigating factors. The biggest example of this is in the French wine industry. France is at a loss for what to do this its fermented grapes. They're distilling it and selling it as vodka (Ciroc, Idol) and turning into a fuel additive. Now would be an excellent time to pick up a French wine habit because prices will be depressed for a while until France comes up with a better way to handle their production. An ancillary benefactor to this problem will be the grape-based vodkas coming from France since this will be a cheap way for France to offload its wine surplus.
Unlike their distilled counterparts, most non-domestic beers are fermented and bottled domestically. The cost-benefit for importing finished bottles of beer just doesn't make sense for the beer market. The result is domestically produced "imports". These are less likely to suffer from cost inflation due to currency valuations. That pint of Guinness will stay pretty low because it's being produced in America.
Price will also boost the fortunes of the domestic microdistillery movement. American produced vodkas and ryes will benefit from their imported/corn based competition's price pressures.
Also expect that rum and tequila prices will be favorable compared to the whiskies. The Mexican Peso and other western hemisphere currencies are stable compared to the US Dollar. That, coupled with shorter distance to market, will yield favorable prices for these products in America. The one exception I would see to this would be in Brazillian Cachaça since Brazil's economy relies on cheap ethanol produced from cane sugar to fuel its automobiles in a similar fahion to America's dependence on corn-based ethanol to fuel its own cars.
In short, expect 2007 to have some more expensive alcohols regardless of their quality and demand. There will be bargains in some sectors, but you will need to shop around to find them. My advice would be to pick up a white spirits habit because it will be a cheap fallback for a while.