Sean O'Grady: Yet another squeeze on households will be felt across the whole economy

The truth is, we don't need the Office for National Statistics, the Bank of England or anyone else to tell us inflation is high – we feel it every time we fill up the car, do the weekly shop or buy a season ticket. If the latest data is correct, wine, vodka and whisky are going up so fast that we may not be able to afford to drown our sorrows.

With more tax rises due in April – 750,000 people dragged into the 40 per cent tax band – and little hope of inflation-busting pay rises it is clear that, as Mervyn King said the other day, we are living through the longest squeeze on living standards since the 1920s.

Meanwhile, the recovery is far from assured, and it will take another year or two for the economy to return to where it was in 2008, before the slump.

Sorry to report, then, that the misery doesn't stop here. Inflation at 4 per cent plus, and at more than 3 per cent for the past year, means one thing: it is a matter of "when" rather than "if" the Bank of England will raise interest rates and end the extraordinary policy of easy money it began at the end of 2008, when the world's financial system was in imminent danger of collapse and a 1930s-style depression was averted.

The Bank Rate at 0.5 per cent, it bears repeating, is the lowest in the Bank's 317-year history, and even if rates went to, say, 1.25 per cent by the end of the year – as the markets expect – this will still be only about a third of any normal level. Yet it could still have a devastating impact on the housing market, and that, above all, would have serious political consequences for the Coalition parties.

The vast majority of household wealth in the UK is tied up in housing, and the outlook for property prices is already fairly bleak. In areas such as the North-east, West Midlands and South Wales where public-sector job cuts are going to be concentrated, the consequences could be especially severe.

While there is one lone dove on the Monetary Policy Committee arguing for more "quantitative easing" – the direct injection of money into the economy to combat the risk of slump and deflation – the balance of opinion there seems to be shifting steadily towards an increase in rates and withdrawal of QE, and it may well sanction a rate rise in May.

At the last count there were two "hawks" of the nine members arguing for a rise, and more may have sympathies with them – though some may be frightened of voting for a rise now if they themselves tipped the balance. Instead they might want to "signal" a future rise if they can safely do so in a minority. It used to be said that the Parliamentary Labour Party was the most sophisticated electorate in the world; the MPC surpasses that standard of sophistry.

Whenever it comes, bigger mortgage bills will be an unwelcome additional burden for struggling households. Before long the sickly British economy may be subjected to an unprecedented assault via public spending cuts, tax hikes and higher interest rates to treat its ailments of excessive public borrowing and unhealthily high inflation. Will it kill or cure the patient?