You are far from alone if suddenly you’re finding that your money doesn’t stretch as far as it did before lockdown.
From a tank of fuel to a pint of beer, almost everything seems to be much more expensive.
This is inflation in action, the rate at which prices for goods and services increase. And last week it emerged that inflation is rising at its fastest rate for nearly three years, hitting 2.5 per cent in June following a surge in the price of food and second-hand cars.
Higher prices: Last week it emerged that inflation is rising at its fastest rate for nearly three years after hitting 2.5 per cent in June, following a surge in second hand car and food prices
Experts are now warning that a post-lockdown spending boom could push inflation as high as 4 per cent within months.
This in turn could lead to an increase in interest rates to help keep a lid on the cost of living, and return inflation to the Bank of England’s target rate of 2 per cent.
Here, Money Mail explains where prices have risen most sharply — and shares simple steps you can take to protect your pocket.
Gas & electric
Rising gas and electricity costs has been one of the biggest drivers of inflation, according to the Office for National Statistics (ONS).
In April, 11 million households on standard energy tariffs, which are typically the most expensive, saw their bills increase by almost £100 a year after watchdog Ofgem raised the average price cap by £96, to £1,138 a year.
And experts warn that a surge in wholesale gas prices could see the cap jump by another £100.
This would be a devastating blow ahead of winter for millions of families, who would face an average annual bill of nearly £1,250.
The best way to ensure you do not overpay for energy is to switch tariffs often through comparison sites such as Energy Helpline or Uswitch.
The cheapest one-year fix is currently £1,036 with Utility Point — a £102 saving compared with the Big Six suppliers’ average standard tariff, based on average usage.
Rising oil prices means the cost of fuel has also spiked. Average petrol pump prices are more than 133p per litre — the highest level since 2013, according to the AA.
It adds that a family with two petrol cars now faces spending around £35 more per month on fuel.
Tanked up: Average petrol pump prices are now above 133p a litre – its highest level since 2013, according to the AA
The cost of diesel has climbed to nearly 136p, the most expensive rate since November 2018.
Sarah Coles, from investment platform Hargreaves Lansdown, says: ‘Shopping around for a better deal is a delicate balance as you don’t want to drive so far that you spend the money you save on extra petrol to get you there.
‘Petrolprices.com lets you check your usual routes for the cheapest provider. As a rough rule of thumb, this will tend to be supermarkets with plenty of competition in the area.’
Food & Drink
Food and non-alcoholic drink prices rose by 2.5 per cent in the 12 months to June 2021.
But the good news is that supermarkets in the UK compete aggressively on price, so you should still be able to find great deals.
Comparison site mysupermarket compare.co.uk tells you where you can find the best prices.
Another way to save money is to use apps that aim to reduce food waste, such as Olio and Too Good To Go, on which people, shops and restaurants offer free or cheap surplus products.
You can also buy short-dated goods at a discounted price at Approved Food (approved food.co.uk).
The rate of inflation for clothing and shoes peaked at 3 per cent in June — for women’s clothes it went up by 4.3 percentage points.
Usually, prices rise steadily from the start of the year. Instead, they fell in February as desperate retailers attempted to boost sales with hefty online discounts during lockdown.
Shop smart: Food and non-alcoholic drink prices rose by 2.5 per cent in the 12 months to June 2021
Some businesses have also raised their prices because they have been hit by soaring international shipping costs following a surge in online orders and a shortage of carriers.
When online shopping, always compare prices using sites such as Google Shopping, Kelkoo, PriceRunner or PriceSpy.
You can also find bargains on online marketplaces such as eBay, or look for second-hand freebies on sites such as Freecycle or Freegle.
Rising inflation can lead to higher interest rates as economists look to keep a lid on increasing prices.
And with experts predicting that rate hikes could come sooner rather than later, now could be the time for homeowners to lock down an ultra-cheap mortgage rate.
Those with larger deposits of 40 per cent can now snap up two-year fixed deals and even one five-year mortgage for less than 1 per cent, according to broker L&C.
If you are in your forever home, there are also ten-year fixed rates at just 1.95 per cent available from Virgin Money.
Lock into a five-year fix at just 0.99%
With economists predicting that rate hikes could come sooner than expected, now could be the time for homeowners to lock down an ultra-cheap mortgage rate
Britain’s biggest building society has waded into the mortgage price war with a record-low sub-1 per cent five-year fixed deal.
Nationwide is offering the ultra-cheap rate, at just 0.99 per cent, to new and existing homeowners with a 40 per cent deposit. On a typical £150,000 mortgage spread over 25 years, the loan would cost £565 per month. There is a £1,499 fee.
The building society also announced reductions of up to 0.4 per cent on selected two-year and five-year fixed-rate loans for first-time buyers. And it is topping the tables with a two-year fix at 0.91 per cent, with a fee of £1,499.
It comes after HSBC and TSB launched two-year fixed rates at just 0.94 per cent.
Experts say that this is the first time five-year deals have dipped this low, and predict other lenders could soon follow suit.
No cash savings account can match, let alone beat, inflation.
Savers need to earn 2.5 per cent just for their money to retain its value. The top rate is 1.65 per cent, but you will have to tie up your money for seven years.
The top easy-access rate is 0.5 per cent for new savers. Those with money already in an account earn just 0.1 per cent on average.
It means each £1,000 in your savings account will be worth just £976 in a year after interest and inflation.
For money you plan to hold for more than five years, you should consider investing instead.
Myron Jobson, from investment platform ii, adds that you may also want to think about using savings to pay down your mortgage or to increase your pension contributions.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.