Inflation hits 5.5% as energy bill and transport price rises pile more pressure onto household finances
INFLATION has soared to 5.5% according to new data from the Office for National Statistics.
In December it had already reached a 30-year high of 5.4%, but now rates have risen another 0.1 percentage points, putting even more strain on households.
It means inflation is now at its highest level since March 1992 - when it had reached a whopping 7.1%.
But the soaring rate trickles down to Brits' pockets too, as the everyday person can expect to pay more for things like groceries and fuel, as well as second-hand cars and rentals.
Analysts had already predicted a rise in the inflation rate, and many expect it to rocket further to 7% by April.
The ONS said rising energy prices were the biggest contributor to inflation, as well as increasing costs of food, alcohol, tobacco, and clothing.
The rising prices have already pushed up bills and created a cost of living crisis for millions of Brits.
Energy bills are due to rise by £693 for millions of people, in just a few weeks' time.
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That's because the energy price cap, in place to stop households being overcharged on their bills, will increase to £1,971 a year by the springtime.
But that might not be the end of rising bills as costs are only expected to soar further later this year in October, when the next price cap announcement is - and another ise hasn't been ruled out.
Transport costs are also to blame for the hiked inflation rate. That's done to a sharp increase in the cost of second-hand vehicles - up 28.7% in a year - and petrol prices reaching a new record high.
On top of that, there's also soaring food costs and tax increases on the way too.
Grant Fitzner, chief economist at the Office for National Statistics, said: "Inflation ticked up again in January, reaching a near 30-year high.
"Clothing and footwear pushed inflation up this month and although there were still the traditional price drops, it was the smallest January fall since 1990, with fewer sales than last year.
"The rising costs of some household goods and increases in rents also pushed up inflation."
The Bank of England hiked interest rates earlier this month to 0.5% in the first back-to-back increase since 2004.
Rate hikes are one way the Bank tries to curb inflation, and it is expected that another could follow at its next meeting in March.
How will it affect household finances?
Inflation has a double-whammy effect on households.
Firstly, you'll notice the cost of everyday essentials going up.
That means at the supermarket your weekly shop will be higher, and your bills at home will rocket too.
The average increase in prices is usually based on how much things cost today compared to a year ago.
So if the rate of inflation were to be 2%, it means something that cost £1 a year ago will cost £1.02 today - it might not sound a lot but it soon adds up when everything goes up.
Further hurting households is the fact that wages failed to keep up with inflation last year, so Brits have less in their pockets to fork out on all the rocketing costs.
If your salary hasn't kept up with the soaring rates, then you could find your household finances are squeezed and it's tougher to keep on top of new prices.
That's because a higher rate of inflation means your money doesn't go as far and you have to spend more as a result.
The second effect of inflation is that is eats away at the value of your savings.
If inflation is higher than the interest you're earning on your savings, you are effectively losing money every year.
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Sarah Coles, senior personal finance analyst at Hargreaves Lansdown said: "If you’re making 0.01% on your savings with a typical high street easy access account, and inflation runs at an average of 5% for the next 12 months, someone with £10,000 of savings would lose £499 of the spending power of their money.
"If you switched to the most competitive easy access account, paying 0.73%, you could hold onto an extra £72 of your spending power."
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