Think inflation is bad now? It's going to get worse...

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There's no denying the pain that inflation is causing families already. We are almost £1,000 worse off than we were this time last year, and we are faced with a stark choice between dipping into savings, going into debt, or making horrible sacrifices in order to cut back on spending.

And the bad news is that things are set to get much worse.

Inflation continues
At least one committee member from the Bank of England has already stated that inflation is a small price to pay for staying out of recession. It means that interest rates aren't going to go up in order to bring inflation down. So the cost of living is going to continue to spiral.

And now Spencer Dale, the Bank of England's chief economist, has warned the Daily Mail that we can expect to see inflation continue to rise over the coming months: he would not be at all surprised to see it going above 5%. If it hits 5.5% that would be the highest level for almost 20 years.

He said the problem was partly the price rises among energy companies - as all of the the big six have already announced price rises as high as 19% since the beginning of the summer. We are paying through the nose for increasing fuel prices and there's very little the bank can do about it - raising interest rates would do nothing to stop the wholesale price of fuel going up.

It means that the pain we are feeling now is going to continue into next year.

The solution
As a result, dipping into savings or building up debts is not going to work, we will simply be creating problems for the future, and when they come home to roost we'll find ourselves not only still mired in higher prices, but mired in debt too.

The solutions are going to have to be the hard ones, with serious cost cutting and lifestyle changes on the agenda. We need to look at every aspect of our lives to try to find a way to live within our means until inflation abates.

The good news is that Dale said this should come back under control next year. The question is whether we can hang on until then.
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