It's as bad as the 70s: Food prices up 20 per cent in a year as oil crisis and credit crunch bite

Over the past year, the cost of a shopping basket of essentials has increased by 19.8 per cent.

Coupled with a rise in the cost of mortgage repayments and household bills, this is pushing millions of families into the red.

The figures come from the Daily Mail Cost of Living Index, which was launched in April this year to show the true rate of inflation.

The official Consumer Prices Index measure of inflation is expected to put it above 3 per cent.

Yet this fails to reflect the real problems in homes up and down the country because it includes the cost of luxury items such as flat-screen TVs, whose prices are falling. It also fails to take increased housing costs into account.

The Mail's Index, on the other hand, shows why many families are struggling to meet their 'must pay' bills.

A typical household which spent £100 a week on food and drink a year ago will now have to find another £1,000 this year for the same items.

But food and drink are not the only family essentials to have become more expensive. The price of diesel has leapt by more than a third in a year, putting up the annual cost of motoring by an average of £340.

There have also been increases to new fixed-rate mortgage costs, and gas and electricity bills.

The increases across life's essentials can be traced to what the Prime Minister is calling 'the third great oil shock of recent decades'. Previous surges in oil prices in the 1970s hit every aspect of consumer spending.

This time, the pain is being exacerbated by the fallout of the credit crunch, which is pushing up the cost of borrowing.

If Tuesday’s Consumer Price Index does top 3 per cent, Mervyn King, the Governor of the Bank of England, will be required to write a letter to the Chancellor explaining why the Bank has failed to hit the official inflation target of 2 per cent.

The Bank's Monetary Policy Committee now faces a tough decision over whether it should raise interest rates to try to get inflation back on track.

Economist Michael Saunders of Citigroup said: 'The Bank can attempt to bring down inflation by putting up rates, but that would heighten the risk of a recession.

'Or it could leave them alone but allow inflation to run above target, which would test the credibility of the Bank's ability to do its job properly.

'It is an extraordinarily difficult situation, a case of taking the least worst option.'

The hikes in 'must pay' bills come at a time when wages are rising by less than 4 per cent a year  -  putting the biggest squeeze on living standards since the 1970s.

The Daily Mail Cost of Living Index is compiled every month with the price comparison websites MySupermarket.co.uk and uSwitch.com.

The June index identifies some startling annual increases. For example, a 500g pack of fusilli pasta is up 12p in a month to 79p. It is 113.5 per cent more expensive than a year ago.

The soaring cost of crude oil, which hit more than $130 a barrel last week, is the driving force behind most of the price rises.

Banks and building societies are also pushing up the cost of home loans. The director of consumer policy at uSwitch.com, Ann Robinson, said: 'Homeowners coming to the end of competitive fixed rate mortgage deals are likely to be in for a sharp shock.

'Consumers are faced with a vastly different landscape in the mortgage arena than two years ago, making it very difficult for anyone looking either to get a mortgage or remortgage today.

'The impact of the credit crunch has meant that there are now fewer lenders competing with attractive rates.'

:: Figures are based on survey of prices at major supermarkets and typical household spending. Prices will vary depending on household make-up, age profile and location.