Sky News Headline today
“Life is like a box of chocolates. You never know what you’re gonna get.”, Forrest Gump, 1994
There is what you are told and what you know. We tend to think in headlines, then live in our reality. As I read this headline today, I pondered all the way back to last Friday night. I was having dinner out and I looked at the drinks menu.
Side Note: Authors view: There is some good marketing here though. I would rather pay $1,600 per glass for a Macallan than 7 for a Coors light. Dogwater that stuff.
Neither, apparently, do your customers. Except now the box costs 40% more, it’s smaller, and they’re paying for it on Klarna. (Klarna are not a sponsor but if they want to be, they can be).
Now For Something Slightly more Ridiculous. The News.
Why The Headlines Are Lying To You With A Smile.
“UK inflation drops to 3%.” That’s the headline. And it sounds like good news. It is good news in the way that being told the hurricane is only a Category 3 is good news, relative to Category 5, sure, but your roof is still gone.
Is the news there to sway public sentiment or to tell the real version of the story. We need to grapple with this. The real story is an economic one and probably, for sanity’s sake the one we should focus on. But, come on. We are all adults. We are all human. Wars impending, stock markets up and portfolios rest since the start of the year. Not to mention many GDPs invested in AI over the last few months also.
Back to Scheduled Broadcasting.
Here’s what they’re not saying: Now I saw Sky do this before Christmas. Compounded inflation. Bear with me.
The price level, the actual cost of a basket of goods, is roughly 40% higher than it was in January 2016. Inflation dropping to 3% doesn’t mean prices are coming down. It means they’re still going up, just more slowly. On a base that’s already been absolutely ratcheted upward.
Think of it like compound interest working against you. The big jump happened in 2021–2023. That jump is now baked in. Permanent. A £100 basket in 2016 is a £140 basket now. Cooling the rate of increase doesn’t rebuild that £40. It’s gone.
I used Perplexity to draw this for me and some other charts - verified through public data sources.
I am now middle aged and say frequently - it didn’t cost that much in my day.
Largely, though it didn’t. The confectionary and snack industry have also gleefully made our pack sizes smaller and more expensive so now we find ourselves in this Father Ted Moment asking are those Mars bars really small or just really expensive.
I hear you ask. *Chuckles to self at gag*. It is interesting though and worthwhile to know this was once a noble thought and supposed to be helpful.
Over the last decade, though, the core methodology of the UK’s CPI has stayed broadly consistent. It is still a Laspeyres‑type index based on detailed price quotes grouped by COICOP categories, using geometric means at the micro level and expenditure‑share weights at higher levels. The shift to a 2015=100 reference was just a re‑labelling of the base year, not a re‑write of inflation history.
What does change every year is the composition and weighting of the CPI “basket”: items are added and removed to reflect real‑world spending. The ONS has, for example, added newer forms of tech and services and removed products that consumers barely buy anymore, explicitly to keep the index representative. Those basket tweaks can move the detail at the margin, but they do not overturn the headline fact that a representative consumer basket is around 40% more expensive than it was a decade ago. I know I am repeating myself but apparently saying the same thing 3 times over makes it true. Ask Beetljuice.
So CPI is not disguising some radically different reality; it is codifying it. The index is telling you that the cost of maintaining a broadly similar standard of living is dramatically higher than it used to be – in the UK more than in Ireland or the US – even if the pace of further increases has dropped back.
The UK, Ireland, and the US Walk Into A Bar
(the punchline is that they all leave poorer than they came in. And drunker.)
This happened everywhere. The US had its surge. Ireland had its energy and housing crunch. But when you plot the CPI of all three countries from 2016 to now, rebased to 100, the UK line sits highest. It rose more steeply, stayed elevated longer, and is only now cooling off the top of a higher mountain.
For those of us with one eye on the Irish market and one on North America, this is useful context. Here is the ecommerce part.
A €500 jacket in Ireland has a different story to a £500 jacket in the UK, not because the Irish consumer is dramatically wealthier, but because the cumulative price experience has been slightly less brutal. And in North America? The Fed moved faster and harder on rates. The inflation spike was real but shorter. The US consumer, relatively speaking, got a quicker reset.
The UK consumer is still paying for the duration. And so are you, if you sell to them.
Let me start with a product. A jacket. £500. Hang it in your mind like it’s in a shop window on a rainy Tuesday in November. It’s beautiful. It’s aspirational. It’s the kind of thing your customer pins to a mood board, screenshots for later, and comes back to at 11pm after a glass of wine. Or two. Or 3. Hey, it’s Friday sin’t it?
Now let me tell you what that jacket actually costs you to sell, and why the story of that jacket is really a story about ten years of economic quiet vandalism.
2015, You’ve Got A Friend In Me
It’s 2015. The jacket is £500. Your gross margin is 50%, a clean, healthy £250 gross profit per unit. You’re spending about £8 to pick, pack, and ship the thing. You’re netting roughly £242 in contribution before you touch CAC, overheads, or the cost of your returns policy.
Your conversion rate? Around 3%. Meaning every 33 visitors to your page, one of them buys that jacket. The economics feel right. The customer feels right. The whole thing has the energy of a movie where you know it’s going to work out.
This is the Pretty Woman era of DTC. The odds were actually in your favour.
2020, Something Wicked This Way Comes
The pandemic hits. And here’s the strange part: for a while, it’s good. Genuinely good. Consumers are stuck at home, they’re shopping online, your conversion ticks up to 3.2%. Lockdown is doing your remarketing for you.
But underneath? The foundations are shifting.
Your fulfilment is creeping to £10 a unit. Your customers are quietly starting to use BNPL for the first time. Not because they can’t afford the jacket, not yet, but because Klarna is right there, and why not spread it?
You are, without fully knowing it, selling into future income. The jacket is going out the door. The debt is staying in the house.
2025/26, Welcome to the Jungle
Here’s where I need you to feel something.
The jacket is still £500. You held the price. You felt like you had to, because the news said inflation was coming down, your customers were already squeezed, and you didn’t want to be the brand that kicked them when they were down. Admirable. Genuinely.
But consider what’s actually happened:
Your fulfilment is now around £14. Your contribution after shipping is £236, nominally only £6 less than 2015, which sounds fine until you realise that £236 today buys about £170 worth of 2015 business. Marketing. People. Stock. Overhead. It’s all more expensive.
And your conversion rate? Down to 2.2%. Which means you need 45 to 50 visitors per sale now, not 33. You’re buying more traffic to sell the same jacket. The maths are doing something ugly in the background and you’re choosing not to look directly at it, like the scene in Jurassic Park when they tell you not to move and you think staying still is the same as being safe.
It’s not.
The Table That Tells The Story Nobody Wants To Frame
Note: I didn’t get into actual cost price to produce either, because I want to sleep tonight. The smart ones shifted production and procurement. The others, still paying top dollar for bottom dollar. On paper: stable. In reality: you’re running harder to stand still, like the bit in The Matrix where everything slows down except the thing trying to kill you. Except in this version, there’s no Neo. There’s just you, your Shopify dashboard, and a remarketing audience that’s getting more expensive by the quarter.
So how much should I be selling it for?
To keep that jacket truly profitable, to actually preserve the real margin structure you had in 2015, you’d need to price it at around £700.
Not because you’re greedy. Because £500 in 2016 economics is approximately £700 in 2026 economics. The inputs, fabric, labour, warehousing, marketing, all went up too. CPI didn’t only happen to your customer. It happened to your supply chain first.
But here’s the trap: the customer who could comfortably spend £500 in 2015 is now carrying more unsecured debt, a higher mortgage rate (if they have a mortgage), and £140 worth of permanent price increases on their food, rent and energy. They’re not necessarily poorer on paper. But they’re financially tighter in reality. The discretionary budget that your jacket lives in? That’s the first place it gets squeezed.
Price to £700 and you’re probably profitable. But some of your 2015 customers can’t follow you there, not comfortably, and maybe not without BNPL.
Stay at £500 and you’re subsidising them with your margins, hoping conversion doesn’t fall further, and building a business that looks healthy in the spreadsheet and is structurally fragile underneath.
The house hasn’t burned down. But it’s definitely been scorched.
Three Questions I’m Leaving With You This Week
1. Have you actually stress-tested your prices against cumulative inflation, not just last year’s cost increases? If not, you might be selling a product that’s been quietly under-priced for three years and you’ve been explaining the margin erosion as a “volume problem.”
2. What percentage of your sales are now BNPL or credit-funded? And do you know what that number looked like in 2019? Because if your revenue line looks healthy and your BNPL penetration has tripled, you’re not growing a customer base. You’re borrowing one.
3. If your most loyal customer, the one who bought in 2015, walked in today, could they still afford you? Not on credit. Not on Klarna. Actually afford you, out of current income. Because the answer to that question tells you more about your brand’s long-term health than your last email open rate.
Note: I didn’t get into actual cost price to produce either, because I want to sleep tonight. The smart ones shifted production and procurement. The others, still paying top dollar for bottom dollar. On paper: stable. In reality: you’re running harder to stand still, like the bit in The Matrix where everything slows down except the thing trying to kill you. Except in this version, there’s no Neo. There’s just you, your Shopify dashboard, and a remarketing audience that’s getting more expensive by the quarter.