Inflation hit 5.2% in September, mainly due to gas and electricity price hikes, but there are things we all can do to tackle the soaring cost of living and ensure we keep our bills to a minimum.

The Consumer Prices Index measure of inflation increased from 4.5% in August to 5.2% last month, having only ever reached this level once before, back in September 2008.

Meanwhile, The Retail Prices Index figure, which includes mortgage costs, hit 5.6% in September, up from 5.2% the previous month, its highest level since 1991.

As well as rising energy bills, steeper mobile phone charges also contributed to the rise in inflation along with higher second hand car prices.

Kevin Mountford, head of banking at MoneySupermarket.com said: “The rising cost of living is something UK adults have had to bear the brunt of over the last 12 months, with rising energy, fuel and food costs putting significant pressure on the nations’ wallets.

“Now definitely isn’t the time to be apathetic. If you’re in a position where you cannot see a way out then don’t bury your head in the sand; sit down and review at all of your outgoings to make sure you are on the best deal for your circumstances.

Cutting unnecessary expenditure on household bills can go some way to help reduce the financial stress.”

Here, we look at how you can reduce the amount you spend on energy, home and motor insurance, and food, as well as what savers can do to help protect themselves from the ravages of inflation.

Get the best deal on energy

Despite the fact that you can make substantial savings by moving to a better energy deal, millions of people continue to pay way over the odds for their gas and electricity.

The latest price increases have added an average 17.4 per cent to the cost of gas and 10.8 per cent to the cost of electricity, resulting in average annual standard bills of £1,287, so now really is the time to take action.

Scott Byrom, energy manager at MoneySupermarket, said; “Those who aren’t shopping around for the best deal, are simply burning money.

Finding the right tariff for your consumption level and region means bill payers could save on average £237 per year.

“For example, the cheapest online tariff available is npower’s Sign Online 24 with annual bills of £1,050 on average, but, for the same price, consumers can protect themselves against future price rises with either EDF Energy’s Fix for 2012 tariff with bills fixed at £1,050 until December 31, 2011, or OVO Energy’s New Energy Fixed product which is a set price for 12 months from the point the deal is taken out.

However, the OVO tariff is not available in all regions of the UK.”

For help reducing energy bills, MoneySupermarket offers a dedicated consumer telephone helpline to help with the switching process.

Customers can call 0845 345 1296.

Cut motor and home insurance costs

Households benefited from falling home insurance premiums over the first half of the year, according to MoneySupermarket’s inaugural Home Insurance Monitor.

However, over the last few months that trend seems to be reversing and price increases are expected. Don’t just accept the renewal quotes offered to you by your car and home insurance companies as you may be able to get a better deal elsewhere.

The average saving for consumers using MoneySupermarket to buy their home insurance premium is £127. Remember that the fewer the claims you make, the higher your no claims discount.

So for minor issues that would be inexpensive for you to cover with your own cash, think twice before making a claim.

You could also consider raising your excess on both your car and home insurance policies- the portion of any insurance claim you pay yourself – as this will bring down the cost of premiums.

 However, make sure it is still affordable, as you don’t want to make it too expensive to make a claim.

Reduce food bills

Recent research by MoneySupermarket found that for one in four people, it is the rising cost of food that is causing the biggest financial strain.

Try writing a meal plan every week to cut down on wasted food. You can also reduce your weekly food bills by changing where you shop.

The website mysupermarket.com is worth a look, as it shows you exactly how much your regular shop would cost at different supermarkets.

That means you can make sure you’re getting the best prices for your specific basket of items.

What can savers do?

The past few weeks have seen a flurry of new index-linked savings accounts introduced, but savers need to proceed with caution.

Many of these accounts tie you in for several years so you cannot get access to your cash, and while inflation is high now, the Bank of England expects that it will fall back by 2012 and 2013.

The Post Office, for example, is one of the latest providers to launch new issues of its inflation-linked accounts, which can be opened with a minimum investment of £500.

The rate of return on its five and three year accounts is based on the annual RPI as measured in January each year, plus a guaranteed fixed return of 1% or 0.25% gross per year.

For example, the annual RPI rate in August 2011 was 5.2%. If this product had been available the year before – and used August RPI readings as the basis for the return – the annual return for the first year would be 6.2% – RPI of 5.2pc plus one percentage point for the five-year bond – or 5.45%, which is the RPI of 5.2% plus 0.25% for the three-year bond. 

But in years when inflation is falling, you will only end up with the fixed rate of return.

BM Savings also offers a 3 Year and a 5 Year Inflation Rate Bond, with the annual interest earned based on the October RPI inflation figure plus an additional payment.

With the 5 year bond, if inflation falls, you will just earn just the additional payment of 0.50%, while the 3 year bond would pay just 0.25%.

Santander similarly has an index-linked savings bond which will pay a return above the rate of inflation.

It’s a six-year product paying 105% of the growth in the RPI over that time and can be opened with a minimum investment of £500. However, if inflation falls over this period, you will only get your initial investment back.

If you don’t want to tie your money up in an inflation-linked account, then the best way to maximise returns is use your individual savings account (ISA) allowance as returns are tax-free.

You can invest up to £5,340 in a cash ISA this tax year, and the same amount in stocks and shares, or you can invest the full amount in stocks and shares.

Northern Rock’s Online eISA for example, which is exclusive to MoneySupermarket and can be opened with £1, pays 3.05% a year tax-free. The account also accepts transfers from existing ISAs.

Other competitive alternatives include the ING Direct Cash ISA, which pays 3.00%, again on a minimum investment of £1. This rate is only guaranteed for a year however, so you may want to move your money at the end of this period. 

Mr Mountford said; “Even if savers can’t beat inflation, the difference between the average and top paying rates is considerable, so switching to a better deal can help to limit the impact on their savings pots.”

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