Economist and Opposition Senator E.T. (Bob) Richards says the highest inflation figure in 16 years may just be a "blip" — but that inflation in the construction and property sectors are the real causes for economic concern.

Government announced this week a 4.5 percent year-on-year inflation figure for the month of May, the highest rate since July 1991.

According to the Consumer Price Index — a measure of the cost of goods and services — the main drivers were more expensive energy and rising costs in the transport and vehicle sectors. Both factors could be put down to rising global energy prices, according to the Ministry of Finance.

"The nature of the CPI is that you are going to get blips," said Sen. Richards, who has warned before that he believes the Island's economy is overheating. "You can't draw huge conclusions from one month's data."

What concerns Sen. Richards more is the rising cost of rent fuelled by a booming construction sector, a situation likely to hurt Bermudians in the lowest earning bracket the most.

Rents were three percent higher in May than they were 12 months before, according to the CPI data, but Sen. Richards believes that is not an accurate reflection of what is happening in reality.

"The anecdotal information would suggest that rents are sky-high and rising, but this does not seem to be borne out by the figures," Sen. Richards said. "I'm not sure why that hasn't come through."

The May CPI figures showed the rent controlled sector rose 0.2 percent from April — as landlords renovated and upgraded properties — while other rents did not rise at all.

A plethora of new building projects — not enough of them focused on affordable housing — and interest rates that have risen steadily over the past 18 months meant conditions for economic overheating were prevalent, Se. Richards said.

"The construction industry is threatening to go into hyperdrive, particularly with the wave of new hotels," Sen. Richards said. "I don't know where all the manpower for all these projects is going to come from, because every available person is already busy in construction."

The lack of affordable housing was "a problem that has not gone away at all" as most of the building activity was focused on providing office buildings, hotels and high-end homes, he added.

Figures in the Department of Statistics' latest quarterly bulletin show that the value of residential construction projects in place during the first quarter of of 2007 was $10.6 million — the lowest figure for three years. Meanwhile the figure for offices and shops was $19.9 million, the highest figure for nearly two years. And the value for hotel projects was $37 million, a rise of $10.4 million on the same period a year earlier.

Housing allowances given out to many overseas staff by international business was acting as a rising tide lifting the rental market, but Sen. Richards said the companies should not be blamed for the problem.

"People blame international companies, but you have to take their behaviour as a given," he said. "You have to make adjustments in other areas to meet these problems."

Meanwhile, the vicious cycle was being exacerbated by high levels of debt in the community, as many had stretched themselves to take out loans allowing them to partake in the property market, Sen. Richards said.

"The banks are now giving 100 percent mortgages, which from a macroeconomic point of view is a bad development," he added. "Going into debt to buy your home is not a bad thing — but too much of a good thing is a bad thing.

"That liquidity is driving up the economy, but the Government does not seem to want to pay any attention to the lending situation."

Bermuda Monetary Authority (BMA) figures show the banks have been lending out more. The latest BMA report stated that combined loans, advances and mortgages lent out by the Island's banks totalled $3.81 billion — far in excess of the $3.5 billion the banks held in deposits.

The people who would suffer from the construction and property boom and the pinch on affordable housing were the most vulnerable in society, Sen. Richards said.

"I think the Government should be telling Bermudians how they plan to coordinate and control this situation," Sen. Richards said.

The Finance Ministry does not believe the economy is overheating. In its response to the 4.5 percent May inflation figure, the Ministry stated: "The Ministry's 'heat-gauge' on the economy is stable. In other words, there is a reasonable balance between the demand and supply of goods and services in Bermuda's marketplace.

"Therefore, the Ministry of Finance considers it would be premature and economically unwise to take any policy measures that would have the effect of shedding jobs, reducing business sales turnovers, or slowing investment outlays."