Inflation has touched a 16-year high in Bermuda, driven by higher oil and energy prices and more expensive hotel room rates overseas biting into the pockets of Island residents.

The monthly inflation rate leapt 1.4 percent between April and May, putting Bermuda in the unenviable position of having a higher rate than the US, UK or Canada.

Bermuda's heavy reliance on goods and services from the outside world has been identified as the main driver for the rocketing consumer price index figure. The last time Bermuda had a higher monthly inflation rate was July 1991.

More expensive domestic energy and rising costs in the transport and vehicle sector were the two biggest contributors to the new high.

Both can be linked to the effect of global oil price rises and that was something warned about by Finance Minister Paula Cox when she presented the Budget earlier this year.

A Finance Ministry spokesperson said the Bermuda domestic economy is not being viewed as overheating at the moment and the underlying 12-month inflation rate remains close to the three percent desired track, sitting at 3.3 percent up to May.

"The headline inflation rate is a reflection of price pressures in the overseas energy and vehicle supply markets. Government indicated in its Budget statement that the outlook for inflation would depend very much upon oil prices," said the spokesperson.

"If the pressures in the oil markets continues it will propel the underlying inflation rate to a higher level, and this would not be a welcome development."

The fuel and power sector of the economy saw prices rise 7.6 percent, with higher electricity costs resulting from the fuel adjustment clause in household bills rising by 17 percent.

Belco senior vice-president and treasurer Andrew Parsons underlined the effect of the escalating cost of oil globally on the Bermuda market, pointing out that in January the "landed" price of a barrel of fuel, which includes shipping and tax, was $68, and in May it had risen to $84. The current price is higher still at $96.

Mr. Parsons said factors influencing the price Belco pays per barrel are volatility of supply and consumption on the world market.

The cost of overseas hotel rooms also affects Bermuda's inflation rate, accounting for 2.7 percent of the "basket of goods and services" used to measure the Island's inflation. The cost of overseas hotel accommodation used by Bermudians rose 4.2 percent.

Cheryl Hayward-Chew, vice-president, corporate development and travel at Meyer-Franklin Travel, commented: "As the global community gets smaller and leisure and business travel increase, we have seen an increase in hotel rates overseas which is consistent with the travel industry predictions.

"Vacations are a priority for Bermudians and people's tastes seem to be getting more expensive and this includes hotels. There are so many exciting places to travel today and Bermudians are certainly taking advantage of that.

"They used to go to Boston for the weekend but, for example, with lower airfares and an increase in the number of flights, we now we see people travel to Las Vegas or Hawaii."

That heavy overseas influence on the inflation rate is the reason the Finance Ministry does not believe the domestic economy is overheating. A Ministry spokesperson said: "The economy is buoyant and strong but cannot be said to be overheating, solely on the basis of consumer price index readings, which are sensitive to external price markers.

"Bermuda has an open economy subject to the influence of rising commodity prices that are set in external markets and imported into Bermuda.

"These externally-based price trends are not a reflection of domestically-generated price markers."

With that in mind, Government does not at this point see the need to take action to modify the domestic economy in order to rein in inflation.

"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."

A breakdown of the economy also shows higher automobile costs. Food prices declined slightly (0.6 percent) with frozen spare ribs dropping 10.4 percent, and eggs and potatoes also falling.

The current inflation rate means a basket of goods and services that cost $100 a year ago now costs $104.

The May inflation rate in the US was 2.7 percent, in Canada it was 2.2 percent and in the UK it was 4.3 percent.