The Truth about Inflation

...according to the Chancellor, one threat we don't have to concern ourselves with is the return of inflation.

As he said in his Budget, "we can be confident about the inflation outlook ... there will be no return to the inflation rates of the early 1990s".

His official forecasts bear out this optimism, showing a slight rise to a modest 2.5 per cent this year, falling back to around 2 per cent in 2009.

This year a typical family will be paying as much as £1,700 more for essentials such as food, water, council tax, petrol and mortgage payments than they were a year ago.

Gas and electricity prices have risen dramatically. Energywatch, the consumer watchdog, believes that the average household bill for fuel and power has risen to £1,020 - up £100 on a year ago.

Water bills went up £21, well above the rate of inflation.

Food prices across the board have risen by 6.6 per cent in the last year, with the cost of staple foods soaring even faster.

Milk is up 16 per cent on a year ago, bread up 14 per cent and butter 36 per cent.

One survey by the price comparison website mysupermarket.com found a 11.3 per cent increase in the price of 24 key items in the last year, equivalent to an increase of £580 a year for an average household.

Running a car has become far more expensive. The price of fuel rose nearly 20 per cent last year. According to the AA, a typical family with two petrol cars are paying £431 a year more in fuel costs.

Another hard-to-avoid expense which has gone up is the bill for servicing the mortgage. A family with an average £100,000 mortgage was up to £780 a year worse off in December than a year ago, thanks to increases in interest rates.

Council tax went up too, by an average of £66 last year. In total, just taking into account these largely unavoidable costs, the average English family is up to £1,700 a year worse off.