Families already struggling with the rising cost of living are likely to find it even harder to make ends meet as a result.
Kevin Mountford, head of banking at moneysupermarket.com said: "Consumers are not only battling rising day-to-day costs and a reduced level of disposable income, many are also having to deal with pay freezes, which mean their incomes are effectively being reduced.”
Households where money is tight are not the only ones for whom the hike in inflation is bad news, though.
Hard-pressed savers trying to maintain the value of their cash nest eggs also face the difficult task of finding even better deals, despite the low interest-rate environment.
To beat inflation, basic rate taxpayers now need an account paying 5.63% or more to gain benefit in real terms from their savings, while higher rate taxpayers need at least 7.51%.
Advice for cash-strapped families
Recent research from moneysupermarket.com revealed that weekly outgoings for the average British adult have risen by £54 over the past six months alone.
In 22% of households, things have become so strained that people can no longer stretch their finances to make ends meet.
And the ongoing petrol price hikes are likely to spell more misery for those struggling to cope.
Four in ten adults say the soaring cost of petrol, which has now jumped to £1.34 a litre for the first time, has had the biggest impact on their finances over the past 12 months, while a quarter say the rising cost of food is causing the biggest strain and two in ten are finding rising utility bills hard to handle.
Ways to reduce the impact of these price hikes therefore include cutting out any unnecessary car journeys, taking advantage of supermarket reward schemes and discount vouchers to lower shopping bills and checking you are on the cheapest possible energy deal.
With duty on alcohol and tobacco also shooting up by record levels since the Budget in March, drinking less and giving up smoking could also help you to save those vital pennies.
Mountford said: “For families struggling with day-to-day costs, spending wisely, using discount vouchers and shopping around for the cheapest deals on their borrowing and household bills should be top priorities.”
Advice for savers
While this latest rise make it even harder for savers to find deals offering inflation-beating interest rates, that is no reason to leave your savings languishing in a poor-value account.
There is a huge difference between the best rates available and those paid on the typical savings account, so it is more important than ever to make sure that you are getting a good rate of return.
Mountford added: “For savers, the low number of products which currently offer a return above inflation means keeping a closer eye on rates and being prepared to switch when necessary.”
It may be worth opting for an account that does not penalise you for moving again in the near future though, as economists believe the hike in inflation will step up pressure on the Bank of England to lift interest rates from their historic low.
Tax-free cash Isas are a good bet for those still to use their annual allowance.
Otherwise, the best account is Nationwide Building Society’s MySave Online Plus at 3.05%, including a 12-month 1.51% bonus – although holders are limited to just one penalty-free withdrawal a year.
You may, alternatively, want to consider an account which is linked to inflation, such as NS&I’s recently re-launched Index Linked Savings Certificates. These pay 0.5% above the Retail Prices Index, which is the higher of the two inflation measures used by the Government and currently stands at 5.2%.
However, the accounts run for five years, so they aren’t suitable for anyone who wants easy access to their cash. The minimum you can invest is £100, and the maximum amount you can invest is £15,000. You don’t pay any tax on any gains.
Kevin Mountford, head of banking at moneysupermarket.com said: "With inflation forecast to remain high for the next two years, this offering will look attractive to anyone looking to protect the value of their savings pot. NS&I Savings Certificates have been extremely popular in the past due to their tax free status and Government backed protection so we can expect to see high demand once again from consumers. Unlike most bonds of this nature, NS&I's product is tax free, giving customers a much need boost to their savings.
"However, these Savings Certificates represent a long term commitment to saving so would only be appropriate for those comfortable locking their money away for the five year term. It's also worth noting that the interest rate, based on RPI figures, is calculated on an annual, rather than a monthly basis meaning if inflation should fall unexpectedly during the year, customers could be stuck with a less than competitive rate.”
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.