There is no bigger issue for Bermuda in 2025 than the cost of living.

This is not a new problem, but since the post-pandemic surge in inflation, it has become extreme.

Many of the goods sold on the island will be inevitably more expensive than elsewhere since almost all must be imported. In addition, the island’s taxation system adds a tariff to many goods.

While no one can say with accuracy what the island’s population is, the exodus of many Bermudians in recent years suggests the population has declined. That forces retailers to raise prices to make up for lack of scale. Nor can they get the kinds of volume discounts that, for example, a Wal-Mart can.

As prices rises, demand for wage increases and other business expenses rise as well to keep pace.

This causes an inflationary spiral, compounded by Bermuda inflation being added to the inflation already generated by other countries.

The result is that Bermuda is now one of the most expensive places in the world to live, regularly topping cost-of-living tables.

It is a complex problem, compounded by the island having little control over many of the factors that drive up prices.

That does not mean there is nothing Bermuda can do.

The classic definition of inflation is that too much money (demand) is chasing too few goods (supply), which drives up prices. Thus, price increases can be slowed, or even reversed, by reducing the amount of money, or liquidity, in the economy or by increasing the supply of goods.

Raising interest rates is one way of reducing money supply. Building more houses would increase supply and should force purchase prices down as buyers have more choice.

There are other ways as well. Automation can lower the cost of labour and those savings can be passed on to the consumer. Lower labour costs can also mean less money in the economy, which results in less demand and price reductions.

Competition, by which businesses compete on price as well as service, is another way.

However, not all of these options are available to Bermuda. Raising interest rates is difficult because Bermuda does not have a mechanism for setting its own interest rates and tends to follow what happens in the United States, which can be in a different stage of the economic cycle.

Taxes can be increased, which also takes money out of the economy. To some degree, this is what happened in the recession of the early 1990s.

There is a further risk with attempts to reduce demand. They can get inflation under control, but can cause a recession.

The Government can also intervene more directly by trying to control prices. This already happens in the Bermuda real estate market where many homes are under rent control. While this arguably makes housing more affordable, it can also be a disincentive to developers to build affordable housing because they may be unable to rent properties at a price from which they can get a reasonable return on their investment. Arguably, this is what has happened in Bermuda.

Now the Government has negotiated price decreases on a basket of essential foods with wholesalers and supermarkets. They consist of a 10 per cent price reduction from wholesalers, followed by a further 10 per cent cut by supermarkets. The reductions will be in place for nine months for 35 classes of goods ranging from eggs to household cleaning supplies.

Contrary to the Government’s claims, this will not necessarily result in a 20 per cent increase across the board, but it should mean substantial savings.

This will be welcome news for shoppers at Lindo’s and the MarketPlace, the two participating supermarkets. However, it is not a long-term solution.

First, it is only in place for nine months and is therefore a stopgap. Second, the overall savings applies only to brands provided by wholesalers. Where supermarkets bring in their own brands directly, presumably only the 10 per cent reduction will be in effect.

The wider problem comes with the concept of price controls. While this exercise has been a collaborative one, it is to be presumed that the wholesalers and supermarkets went along with it because of an implicit or explicit threat of having price controls imposed on them if they did not.

It may be that the participants will ride this out for nine months. But it is possible that where wholesalers and grocers are unable to make a reasonable rate of return on, for example, a brand of detergent, experience in other countries suggests they will simply stop selling that brand, thus reducing choice and competition.

That is what happens when price controls are imposed.

It is also possible that the wholesalers and retailers will dramatically increase their prices in nine months’ time to recoup the present price cuts.

Placing price controls on goods for a temporary period is not a long-term solution to the problem of affordability in Bermuda.

To be fair, the report on affordability does recommend some changes that should make a more lasting difference. This includes reductions in customs duty on essential goods. Why for example, is there 25 per cent duty on toilet paper?

Duty on many foodstuffs has been already eliminated. Why not extend this to all foodstuffs and household goods, but require retailers and wholesalers to pass on the savings and to provide more transparency on pricing?

The Tax Commission also recommends closer regulation on pricing for telecommunications, where competition has been limited in recent years, while also reviewing planning and building fee waivers or deferrals for affordable housing.

Some other government measures, such as reducing the tax on fuel used for electricity generation, have been helpful also.

All of that is welcome, but those measures do not seriously tackle the problem of the overall cost of living.

Much of the pain around prices, especially those afflicting the working poor and medium-income people, relates to the cost of food and housing. Eliminating customs duty on all foodstuffs would be a start, provided the savings are passed on to the consumer. Encouraging people to grow their own vegetables would also help, albeit at the margins.

Encouraging competition in segments that are near-monopolies, or where cartel-like behaviour is possible, would also help to lower prices.

While rent control seems at first glance to be a way of holding down prices, it can have the opposite effect — restraining prices when construction costs are rising makes new construction unaffordable.

However, easing planning requirements and fast-tracking permits for affordable housing — especially on brownfield sites — further reducing tariffs on construction materials and refitting derelict buildings, some of which are owned by the Government, would increase supply.

Requiring upmarket developments to have an affordable housing element would also assist.

One Bermuda Alliance MP Michael Fahy has also recommended reducing the sugar tax — and there is scope for this. It has driven up food costs while failing to materially change health outcomes — in part because there has not been an accompanying public health campaign — so it would make sense to cut the rate from 75 per cent to one sufficiently lower.

Home affairs minister Alexa Lightbourne deserves credit for taking on an issue too many politicians have ducked, and for seeking solutions from the community. But really arresting the rise in prices will take structural reforms that temporary price controls and other measures will not achieve.