While inflation drives prices up… here’s how to protect your wallet

You are far from alone when you suddenly notice that your money no longer reaches as far as it did before the lockdown.

From a tank of fuel to a pint of beer, almost everything turns out to be much more expensive.

This is inflation in action, the rate at which prices for goods and services rise. And last week it was found that inflation is rising the fastest in nearly three years, reaching 2.5 percent in June after rising food and used car prices.

Higher prices: Last week, inflation was found to be rising fastest in nearly three years, after rising 2.5 percent in June, following a surge in used car and food prices

Experts are now warning that a post-lockdown spending boom could push inflation up to 4 percent within months.

This, in turn, could lead to an increase in interest rates to contain the cost of living and bring inflation back to the Bank of England’s target of 2 percent.

Here, Money Mail explains where prices have risen the most – and shares simple steps you can take to protect your wallet.

Gas & Electric

Rising gas and electricity costs are one of the biggest drivers of inflation, according to the Office for National Statistics (ONS).

In April, 11 million households with standard energy tariffs, which are typically the most expensive, saw their bills rise 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 rise in wholesale gas prices could lift the cap by another £100.

This would be a devastating blow to millions of families in the run-up to winter, who would face an average annual bill of nearly £1,250.

The best way to make sure you don’t overpay for energy is to switch rates often through comparison sites such as Energy Helpline or Uswitch.

The cheapest solution for a year is currently £1,036 with Utility Point – a saving of £102 compared to the average standard rate from the Big Six suppliers, based on average usage.

Fuel prices

Rising oil prices mean that fuel costs have also risen. The average gas pump price is more than 133 pence per liter — the highest level since 2013, according to the AA.

It adds that a family with two petrol cars now has to spend about £35 more per month on fuel.

Filled up: The average gas pump price is now above 133p per liter - the highest level since 2013, according to the AA

Filled up: The average gas pump price is now above 133p per liter – the highest level since 2013, according to the AA

The cost of diesel has risen to nearly 136 pence, the most expensive rate since November 2018.

Sarah Coles, of investment platform Hargreaves Lansdown, says: ‘It’s a delicate balance to shop around for a better deal because you don’t want to drive so far that you spend the money you save on extra gas to get there.

With Petrolprices.com you can check your usual routes for the cheapest provider. Roughly speaking, these are supermarkets with a lot of competition in the area.’

Eat Drink

Prices of food and non-alcoholic drinks have increased by 2.5 percent in the 12 months to June 2021.

But the good news is that supermarkets in the UK are aggressively competing on price, so you should still be able to find great deals.

Comparison site mijnsupermarkt compare.nl tells you where you can find the best prices.

Another way to save money is to use apps that reduce food waste, such as Olio and Too Good To Go, where people, shops and restaurants offer free or cheap surplus products.

At Approved Food (approved food.co.uk) you can also buy products with a short shelf life at a discounted price.

Shopping

The inflation rate for clothing and shoes peaked at 3 percent in June, while for women’s clothing it rose by 4.3 percentage points.

Usually prices rise steadily from the beginning of the year. Instead, they fell in February as desperate retailers tried to boost sales with hefty online discounts during the lockdown.

Shop smart: prices of food and non-alcoholic drinks have increased by 2.5 percent in the 12 months to June 2021 2021

Shop smart: prices of food and non-alcoholic drinks have increased by 2.5 percent in the 12 months to June 2021 2021

Some companies have also increased their prices as they have been hit by rising international shipping costs due to an increase in online orders and a shortage of carriers.

When shopping online, always compare prices using sites such as Google Shopping, Kelkoo, PriceRunner or PriceSpy.

You can also find bargains on online marketplaces like eBay, or search for used freebies on sites like Freecycle or Freegle.

Mortgages

Rising inflation could lead to higher interest rates as economists try to keep rising prices in check.

And with experts predicting that rate hikes could come sooner rather than later, now could be the time for homeowners to lock in an ultra-cheap mortgage rate.

Those with larger deposits of 40 percent can now get two-year fixed deals and even a five-year mortgage for less than 1 percent, according to broker L&C.

If you’re home forever, ten-year flat rates of just 1.95 percent are also available with Virgin Money.

Secure a five-year fix at just 0.99%

With economists predicting interest rate hikes could come earlier than expected, now could be the time for homeowners to lock in ultra-cheap mortgage rates

With economists predicting interest rate hikes could come earlier than expected, now could be the time for homeowners to lock in ultra-cheap mortgage rates

Britain’s largest construction company has entered the mortgage price war with a record below 1% of its five-year fixed deal.

Nationwide offers the ultra-cheap rate, from just 0.99 percent, to new and existing homeowners with a 40 percent down payment. On a typical £150,000 mortgage spread over 25 years, the loan would cost £565 per month. There is a fee of £1,499.

The construction company also announced discounts of up to 0.4 percent on select two- and five-year fixed-rate loans for first-time buyers. And it tops the tables with a two-year fix at 0.91 percent, with a fee of £1,499.

It comes after HSBC and TSB launched two-year fixed interest rates of just 0.94 percent.

Experts say this is the first time five-year deals have hit rock bottom, and predict other lenders will soon follow.

h.kelly@dailymail.co.uk

Savings

No savings account can match, let alone beat, inflation.

Savers must earn 2.5 percent in order for their money to retain its value. The top rate is 1.65 percent, but you do have to lock up your money for seven years.

The highest low-threshold rate is 0.5 percent for new savers. Those who already have money in an account earn only 0.1 percent on average.

It means that every $1,000 in your savings account in a year after interest and inflation is only worth $976.

For money that you plan to hold on to for more than five years, you should consider investing instead.

Myron Jobson, of investment platform ii, adds that you may also want to consider using savings to pay off your mortgage or increase your pension premium.

a.murray@dailymail.co.uk

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