The biggest jump in the cost of living for decades has today been confirmed as inflation reaches a new 40-year high.

The rate of Consumer Prices Index inflation rose to 10.1% in July, the highest in more than 40 years and a jump from 9.4% in June, the Office for National Statistics has said.

How will inflation affect me?

Inflation refers to a general increase in prices and a fall in the purchasing value of money.

When the general price of items rises during inflation but the value of money stays the same, consumers can buy fewer items and goods for the same monetary sum.

Therefore, higher inflation would mean people's money would have less and less purchasing power.

The Northern Echo: Inflation hits 40 year high (Canva)Inflation hits 40 year high (Canva) (Image: PA)

As a result, savers may suffer and households may find it harder to stay within their budgets.

Coupled with an already-existing cost of living crisis and an energy cost hike, it will cause a tight squeeze for many households.

It was recently announced that the UK could soon be at risk of stagflation, when an economy sees slow growth, high unemployment and rising prices.

A mash-up of “stagnation” and “inflation”, this means the economy is not working properly. Prices will continue to increase while economic growth decreases.

After CPI inflation was shown to reach 10.1% in July, ONS chief economist Grant Fitzner said: “A wide range of price rises drove inflation up again this month.

“Food prices rose notably, particularly bakery products, dairy, meat and vegetables, which was also reflected in higher takeaway prices.

“Price rises in other staple items, such as pet food, toilet rolls, toothbrushes and deodorants also pushed up inflation in July.

“Driven by higher demand, the price for package holidays rose, after falling at the same time last year, while air fares also increased.

“The cost of both raw materials and goods leaving factories continued to rise, driven by the price of metals and food respectively.”

Workers' pay slump as cost of living increases

This comes as UK workers saw their pay lag behind inflation at record levels over the past quarter, according to official figures.

The Office for National Statistics (ONS) said regular pay, excluding bonuses, grew by 4.7% over the three months to June.

Analysts had predicted that wages would increase by 4.5%.

The ONS said this resulted in a 4.1% drop in regular pay for employees once CPI inflation is taken into account, representing the biggest slump since records began in 2001.