In 1986, the CPI index for tobacco and smoking products stood at 121.2 — about 21% above its 1982–84 base. By January 2026, that index had reached 1,727.8. That is not a typo. Tobacco prices rose 1,327% in forty years — more than any other category in the Consumer Price Index. And unlike hospital bills or college tuition, this inflation was entirely deliberate.
The Consumer Price Index tracks hundreds of categories. Medical care rose 600% since 1980. College tuition rose even more. But nothing — nothing — matches the trajectory of tobacco and smoking products. From an index value of 121.2 in 1986 to 1,727.8 in January 2026, the tobacco CPI increased by 1,327%. That translates to an annualized rate of 6.9% — more than double the pace of overall consumer inflation.
What makes this story different from every other inflation story in this series is its cause. The cost of housing rose because of land scarcity and construction costs. The cost of hospital care rose because of technology and insurance complexity. But the cost of tobacco rose because the government decided it should. Two policy events — one in 1998, one in 2009 — account for the majority of the increase. The data shows them as clearly as seismic events on a Richter scale.
Meanwhile, alcohol — America’s other legal vice — tells the opposite story. Beer prices roughly tracked general inflation. Wine prices climbed, but largely because consumers chose to drink better wine, not because the government taxed them into submission. The federal excise tax on beer has not changed since 1991.
The chart below tells the story more clearly than words can. From 1986 through 1998, tobacco prices rose steadily but not dramatically — from 121.2 to 253.8, roughly doubling over twelve years. Then two seismic events transformed the trajectory.
The first: the 1998 Master Settlement Agreement. In the largest civil litigation settlement in American history, 46 state attorneys general reached a $206 billion deal with the four largest tobacco companies — Philip Morris, R.J. Reynolds, Brown & Williamson, and Lorillard. The companies agreed to pay the states in perpetuity to reimburse Medicaid costs from smoking-related illness. Those costs were passed directly to consumers. In a single year, the tobacco CPI jumped from 253.8 to 354.2 — a 40% increase. Nothing else in the CPI has ever moved that fast outside of energy prices during an oil embargo.
The second: the 2009 SCHIP Act. On February 4, 2009, President Obama signed the Children’s Health Insurance Program Reauthorization Act, which raised the federal excise tax on cigarettes from 62 cents to $1.01 per pack — a 63% increase in the federal tax alone. The effect was immediate and dramatic: the tobacco CPI jumped from 607.4 in 2009 to 784.7 in 2010 — a 29% increase in one year.
Between these two events and the steady accumulation of state-level tax increases that followed, the tobacco CPI has been on a trajectory unlike anything else in the American economy. Compare it to the All Items CPI on the same chart: while general prices roughly tripled since 1986, tobacco prices rose more than fourteenfold.
Alcohol tells a fundamentally different story. The alcoholic beverages CPI rose from 159.0 in 1999 to 299.6 in January 2026 — an increase of 88% over 27 years. That is roughly in line with overall inflation during the same period. There was no Master Settlement Agreement for alcohol. No federal tax shock. The federal excise tax on beer has been unchanged since 1991, sitting at $18 per barrel — roughly five cents per can.
But the average prices of individual drinks reveal something more interesting. A 16-ounce serving of beer went from $0.82 in 1996 to $1.84 in 2026 — an increase of 124%, somewhat above general inflation. Beer is a commodity product manufactured at enormous scale, and its pricing reflects mostly input costs: grain, water, energy, aluminum, transportation, and labor.
Wine tells a different story. A liter of table wine went from $4.96 in 1996 to $14.16 in 2026 — an increase of 186%. Part of this is genuine input-cost inflation, but a substantial portion reflects what the industry calls “premiumization”: American consumers have systematically traded up from cheap jug wine to higher-quality bottles. The average price of wine purchased has risen faster than the price of any particular wine because the mix has shifted upward. The $5 Gallo jug didn’t triple in price — but the average American stopped buying it and started buying $12 Pinot Noir instead.
Spirits, where data is available, show the smallest increase of all. Vodka went from $9.41 per liter in 1996 to $12.40 in 2024 — a mere 32% over 28 years, barely 1% per year. The spirits market is intensely competitive, with global overcapacity and relentless private-label competition keeping a lid on prices even as premiumization pushes some brands into luxury territory.
America’s other indulgences — sugar, sweets, and the restaurants that serve them — round out the picture. The sugar and sweets CPI rose 169% since 1989, from 117.1 to 315.1. That is a solid clip — about 2.7% annualized — but nothing extraordinary. Sugar is a global commodity with efficient supply chains and multiple producing regions. U.S. sugar policy (import quotas and price supports) has kept domestic prices above world levels, but the policy framework has been stable for decades, producing steady rather than explosive inflation.
The real story in food-related vices is not what the commodity costs but what it costs to have someone prepare and serve it. Food away from home — restaurants, fast food, cafeterias — rose 387% since 1980, from a CPI index of 80.2 to 390.5. That annualized rate of 3.5% consistently outpaces both the commodities that go into the food and general inflation. The difference is labor. Every percentage-point increase in the minimum wage, every tightening of the labor market, every rise in commercial rent flows directly into the price of a restaurant meal. The burger patty is a commodity; the person who grills it and the building where it’s served are not.
The table below ranks every vice category by total percentage increase. The spread is staggering: tobacco leads at +1,326%, while the alcoholic beverages CPI trails at +88%. The difference is almost entirely explained by government policy. Tobacco was deliberately targeted with massive taxes and settlement costs. Alcohol was not.
| Category | From | Start | 2026 | Change | Annual |
|---|---|---|---|---|---|
| Tobacco (all products) | 1986 | 121.2 | 1,727.8 | +1,326% | 6.9% |
| Cigarettes | 2010 | 319.6 | 727.5 | +128% | 5.3% |
| Wine (per liter) | 1996 | $4.96 | $14.16 | +186% | 3.6% |
| Sugar & Sweets | 1989 | 117.1 | 315.1 | +169% | 2.7% |
| Beer (per 16 oz) | 1996 | $0.82 | $1.84 | +124% | 2.7% |
| All Items CPI | 1986 | 109.9 | 326.6 | +197% | 2.8% |
| Alcoholic Beverages | 1999 | 159.0 | 299.6 | +88% | 2.4% |
Tobacco’s 1,327% price increase since 1986 is the most dramatic inflation story in the Consumer Price Index — and it is entirely a policy story. Two events account for most of the rise: the 1998 Master Settlement Agreement and the 2009 federal SCHIP tax increase. Government decided cigarettes should cost more, and they do.
Alcohol, by contrast, has been left largely alone by tax policy. The federal beer excise has not changed since 1991. The result: beer prices have roughly tracked general inflation, while cigarette prices have outpaced everything else in the economy. Wine rose faster than beer, but mostly because Americans chose to drink better wine — premiumization, not taxation.
The lesson is stark: when government wants to move a price, it can — and dramatically. The question is whether it chooses to. In the next episode, we leave the national averages behind and ask a different question: does the same grocery basket cost the same in Houston as it does in Boston?