The cost of living increased by 5.4% in the year to December, shows the new Consumer Price Index (CPI) calculation.

This is the highest level recorded since CPI inflation was first measured, in 1997, and extrapolating backwards from that, the highest reading since March 1992, when it hit 7.1%.

The extraordinary price hike was driven, as it was the month previous to this, by transport and energy costs, along with rises in the price of food.

With the energy price cap due to be lifted on 1 April, fuel bills could increase by up to 50% in the second half of this year.

Hargreaves Lansdown personal finance analyst Sarah Coles comments: “Inflation is the horrible 90s trend we didn’t want to see again, but it’s back… and this isn’t the last of it: the Bank of England (BoE) expects inflation to peak around 6% in April, but unless there’s significant intervention in the energy market, there’s every chance it could go as high as 7%.

“This piles the pressure on the BoE when it meets to discuss rates on 3 February. It hasn’t been this far off its inflation target of 2% since it first set it.

“And when you add rising inflation to falling unemployment and record low redundancies, it makes the argument for raising rates far stronger. It won’t want to panic borrowers, businesses or investors by raising rates too far or too fast, but it can’t afford for inflation to get out of control either.”