Fools Say Inflation Is 9%

A recent Foolish survey shows that your living costs are rising by a whopping 9.3%.

Announcing that the cost of living has spiralled would probably be about as surprising as saying that Britain has changeable weather.

But would it come as a bit of a shock to learn that the cost of living is rising by nearly three times the Government figures? That's right - despite the Bank of England stating last month that inflation has reached 3.3%, a recent Foolish survey found that your living costs are actually rising by a whopping 9.3%. Furthermore, 12% of you think that your personal inflation rate is more than 15%.

So, why the big discrepancy - do we have a conspiracy on our hands?

Not quite.

The Bank of England issues two figures for inflation: the Consumer Price Index (CPI) and the Retail Price Index (RPI). Crucially, the CPI doesn't take into account mortgages or council tax (both of which have risen in price over the past year) which is why last month's figure of 3.3% is so much lower than what you Fools reported.

And, although the RPI figure takes into account mortgages and council tax, June's figure of 4.3% still doesn't come near to what appears to be happening in real life.

How inflation affects you

Another reason why the Government's inflation figures often don't seem to stand up is because in actual fact, different groups of people in society will face different rises in the cost of living.

For example, elderly people usually spend less money on items such as clothing and more on essentials such as utilities and food - which are two of the key drivers of inflation at the moment. As a result, the personal inflation rate facing the elderly is likely to be a lot higher than that facing those in their twenties, because a higher proportion of their income is absorbed by those commodities that are rising in price.

Young `uns, on the other hand, tend to spend more money on non-essential items such as clothes and electronics, and so their personal rate of inflation is not as heavily affected by rising fuel and food prices.

Fuel and taxes

Far from intending to embark on a tirade against the Government reminiscent of those seen on the X-Files, it goes without saying that the state plays a major part when it comes to the spiralling cost of living.

While we cannot hold the Government entirely responsible for the rising prices of commodities such as oil and food, when it comes to the tax burden we face on fuel, there is certainly room for improvement.

The ever-increasing cost of petrol is the average Fool's biggest concern when it comes to inflation, with nearly half of you (46%) citing it as more worrying than the cost of food and utilities.

But it's not just the rising cost of petrol at fault. According to the Association of British Drivers, 60% of the advertised price for unleaded petrol is taken in taxes, with Chancellor Alistair Darling currently taking home 70p out of every 120p spent on filling up your cars.

A last resort

It seems that many people are waking up to the fact that owning a car is no longer a viable option. Research issued today by Abbey found that 29% of car owners are using their car less in order to save money, while a staggering 1.3 million people are actually planning to sell their cars because they can no longer afford the petrol.

For those of you who are thinking of saying goodbye goodbye to your wheels, take some tips from Laura Starkey's `Seven Ways to Beat the Inflation Beast!'. It's also worth bearing in mind things like Family and Young Persons Railcards, which can reduce the cost of your train tickets by a third.

And if you fancy switching your car for a two wheeled wonder, that is, a bicycle, try freecycle and local papers for free or cheap offers. Ebay and Loot are also worth having a peek at.

In the current political climate, a reduction in fuel tax looks unlikely, so I guess we'll just have to try and budget as carefully as possible so that our finances don't get out of kilter. Check out our Money Saving Tips hub page for more ideas that could help.