Your inflation survival guide

Rising bills are here to stay for the next few years, according to the Bank of England's quarterly inflation report

11:04 24 February 2013

The Bank's governor, Mervyn King, confirmed that the Consumer Prices Index (CPI) measure of inflation (which was held at 2.70% in January) is expected to sit above the Bank's 2.00% target for another two years. 

He added it could creep up to at least 3.00% by the summer, in spite of consumers already feeling the pinch from rising essential bills such as energy and food. Meanwhile, many salaries have been frozen and savings rates slashed, putting a further squeeze on spending power. 

 

However, there are plenty of ways to minimise the impact of many rising bills. Find then here in our inflation survival guide.

 

Energy bills

The cost of energy has been a particular problem for households over the past year with the 'Big Six' suppliers all hiking prices. The average gas and electric bill currently stands at £1,344 a year, according to figures, compared to £1,251 in January last year - an unwelcome rise of £92.22.

 

Cut the cost:

•Switch to an online dual fuel tariff and pay by direct debit rather than quarterly cash or cheque This will save an average £218.45 a year alone if you have made the switch from the most expensive standard tariff, our research shows.

 

•Insulate your home properly to save on further costs. Clare Walsh has more help on that with her article,Make your home your winter castle.

 

Food

According to the Office for National Statistics (ONS), the cost of food rose by an average of 3.1% last year. The main price increases cam from meat, which rose in price by 3.7%, while sugar, jams and confectionary soared by 5%. 

 

Cut the cost:

•Buy supermarket own-brand items.

 

•Use 'buy-one-get-one-free deals' (Bogof) 

 

•Buy meat cost-efficiently - a whole chicken is often cheaper than just the breast.

 

•Use a credit card issues by a supermarket you use a lot, that gives you something back. The Tesco Clubcard Credit Card for example, allows you to earn Clubcard points at an accelerated rate. It also offers 16 months interest-free on purchases. Make sure you always clear your balance every month though, or the interest you pay will far outweigh the benefits.

 

Petrol

Petrol prices remain at record highs, at an average of £1.37 or as much as £1.40 a litre in some places, compared to an average of £1.35 a year ago. 

 

Cut the cost:

•Find the cheapest petrol station nearest to you by using websites such as Petrolprices.com.

 

•Make use of supermarket promotions offering fuel discounts if you spend a certain amount in store.

 

•Save money on your car insurance to offset soaring petrol prices. The average annual saving made by shopping around for a better deal when your policy comes up for renewal is £400.86 a year, at MoneySupermarket. Visit our motor insurance channel to get started.

 

Water bills

Swiftly following the wave of energy price hikes came the news that water bills are going up by an average of 3.5% over the next year, according to regulator Ofwat. 

 

Cut the cost:

•While you can't switch provider, unlike other household bills, you could choose to use a water meter. This would mean paying only for the water you use rather than sitting on a fixed tariff where you could be paying over the odds.

 

•Read more about this and other ways to save on water costs with Mark Hooson's article, Could you cut your water bills?

 

Rail fares

Rail fares rose by an average of 4.2% for season ticket holders in January. Overall, ticket prices have gone up by 3.9% in England, Wales, and Scotland this year, but rises vary between train operators. 

 

Cut the cost:

•Book as early as possible to get the cheapest fare, and particularly to ensure a reasonable price for a big trip.

 

•You can dramatically reduce your costs by getting a railcard which cost from just £20 and can secure a third off most ticket prices. Go to Railcard.co.uk to see what's available.

 

•Avoid fees when booking your journey online by using TravelSupermarket's train travel channel. Some services charge £3.50 per transaction when paying by credit card.

 

How can savers combat inflation?

Savers need to be really proactive to get the best return on their money, with the current average savings rate just 0.26%. 

 

To beat inflation, basic rate taxpayers will need an account paying at least 3.39%, increasing to 4.51% for higher rate taxpayers, and 5.41% for 50% taxpayers. 

 

Currently no easy access accounts beat inflation. But if you are a UK taxpayer an ISA should be your first port of call as the interest you earn will be tax-free. 

 

Currently, six easy access ISAs and one fixed rate ISA beat inflation. 

 

If you are happy to tie up your money for three years, BM Savings offers a market-leading fixed-rate ISA paying 2.80%. But, as you only get this rate on a £50,000 investment, the account is really for savers wanting to transfer hefty existing ISA balances across to a better account. 

 

While not quite inflation-beating, Halifax offers a three-year fixed rate ISA paying 2.60% on a minimum investment of £500. 

 

Alternatively, Stafford Railway Building Society offers an inflation-busting easy access ISA paying 3.00% on a minimum investment of £1, although this account can only be operated in branch or by post. 

 

Bear in mind also that the Santander 123 credit card offers you the chance to gain cashback on what you're buying. It pays 1.00% cashback on supermarket spend, 2.00% on spend in department stores and 3.00% on spend for petrol and National Rail - plus Transport for London Tube tickets. 

 

Used responsibly, this card will help you get money back on some of the bills that have risen the most.

 

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.