What happens when inflation rises? What do sky-high rates mean for YOU?

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Expert gives cash savers tips to beat inflation

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The consumer prices index measure of inflation for August was the highest since March 2012 – though the Office for National Statistics (ONS) said much of the effect was likely to be temporary. The increase of 1.2 percentage points between the July CPI rate and the August CPI reading was the biggest on records going back to 1997, the ONS has confirmed.

The 3.2 percent rate is higher than the predicted average of 2.9 percent, according to polling by Reuters.

The Bank of England expects inflation to peak at 4 percent this year, though it is thought the effect will be transitory.

More expensive travel and food costs are largely to blame for the push.

Food prices, in comparison with August last year when the Chancellor’s Eat Out to Help Out scheme was running, have jumped considerably, although artificially.

Transport costs have also risen, with petrol being the highest price since September 2013 at 134.6p per litre.

Second-hand car prices have been driven to high levels, up 18.4 percent over the past four months due to a global shortage of semiconductor chips hampering the production of new cars.

READ MORE: European Central Bank just did something which hints they are worried

What does the inflation rate mean for me?

A high inflation rate combined with a low interest rates, as the UK currently has, is bad news.

It means your money will not retain the same buying power when you withdraw as you did at the time you received it.

Experts are united that the high inflation is down to the UK’s COVID-19 recovery boom, which sounds like it would be a good thing as it means the economy is growing.

But the high inflation rate, among other incoming economic changes, such as the National Insurance tax grab, could spell a nightmare for the average person.

Gary Hemming, Commercial Lending Director at ABC Finance, told Express.co.uk: “Rising inflation ultimately makes you poorer by increasing your cost of living, meaning it becomes more expensive to maintain your current lifestyle.

“While it’s often barely noticeable, small increases in the cost of many items can really add up and reduce your purchasing power dramatically.

“Even if your income increases in line with inflation, meaning you’re able to keep up your previous lifestyle, your savings will be negatively impacted in our current ‘low interest’ economy.

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“While some inflation is a healthy sign for the economy, once it exceeds pay rises and the interest rates on savings, your standard of living will reduce.”

Tom Martin, Money Expert at Chip, also advises making changes to your working situation to get the best out of high inflation rates.

He told Express.co.uk: “It’s not all doom and gloom, if you’re in work, ask for a pay rise, or look for a better paying job, as the job market is on your side right now.

“Also, in many cities rents are still down versus the pre-pandemic market, but are quickly rising again as Britain gets back to the office.

“So it might still be worth looking to move, but house prices are still up, a consequence of pent-up demand from a year of lockdowns and the stamp-duty holiday.

“Lastly, if you have savings, you need to be looking at ways to fight the effects of inflation, whether that’s through getting high interest rates, or by looking at investing your cash.”

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