Inflation's damaging effects

As inflation continues to creep up is there any way consumers can protect their savings and boost their spending power?if(typeof(dstb)!= "undefined"){ dstb();}

We may not be pushing around wheelbarrows of money just yet but that's not to say rising inflation isn't hitting us all hard. The official measure of inflation, CPI, hasn't been this high for three years and there are real concerns that it will climb even higher.

CPI is currently 5.2% - this is the highest level it has ever reached in the whole time it's been recorded. 

Meanwhile RPI, another measure of inflation, which includes housing costs, is now 5.6% - the highest it's been for 20 years.

That's a lot of numbers but what does it all mean? Inflation is the measure of how much goods and services have gone up in price. So for example if inflation is 5.2% that means it costs 5.2% more for a pint of milk now than it did a year ago – in other words our money doesn't stretch as far.

To put into perspective a household would need to stump up an extra £1,700 to maintain the same standard of living as last year.

Or if you're a saver and put £10,000 away five years ago, it would now be worth £700 less.

How then can we combat inflation? Gas and electric bills and food prices are the areas we're most likely to notice the effects so if you haven't already switched energy deals – it could save you a couple of hundreds of pounds doing so. Likewise dropping a brand at the shops, and good old-fashioned tricks like writing shopping lists and reinventing leftovers are coming back into fashion.

For savers, there's much less we can do.

A basic-rate taxpayer would now need to find an account that pays 6.5% interest while a higher rate taxpayer would need to find an account paying 8.67% to keep up with inflation.

Our only options are one of five accounts that are either inflation-linked bonds, promising to at least match inflation plus a minimal interest rate or opt for a more complicated structured product.

The bank of England's target inflation rate is 2%, which we're considerably over and beating inflation right now is pretty difficult. But we can at least be aware of the effects – and minimise them where possible.