Island residents paid 3.9 per cent more for goods and services in September this year than in the same month in 2003, according to the Bermuda Consumer Price Index.

September inflation figures for the US (2.5 per cent), UK (3.1 per cent) and Canada (1.8 per cent) were all considerably lower.

Finance Minister Paula Cox said yesterday the inflation rate was higher than the Government had hoped for and noted that September had seen a sharp increase in private education costs.

She warned that if oil prices continued to rise, then so would the headline rate of inflation. But she noted that Bermuda's rate of economic growth, between six and seven per cent, was greater than the rate of price rises.

Economist Craig Simmons said Bermudians should be concerned about the figures, as they indicated an inflationary trend that dated back four years.

And he blamed it chiefly on the island's "overheating economy", fuelled by a burgeoning money supply and the rapid growth of the international business sector.

Opposition Leader Dr. Grant Gibbons said seniors on fixed income were being hardest hit and that the rate of inflation effectively nearly halved the value of the recent nine per cent increase in Government pension payments.

And he added the United Bermuda Party had warned the Government of inflationary consequences when Minister Cox announced public spending increases of twice the rate of inflation in the February budget this year.

A major factor behind the September rise was the increasing cost of education at home and overseas. Local private school tuition fees rocketed by an average of 13.6 per cent, while overseas college tuition went up 6.9 per cent.

The transport and vehicles sector also rose, as a 19.4 per cent increase in taxi fares kicked in and drivers paid four per cent more for fuel at the pumps.

Mr. Simmons, who lectures in economics at Bermuda College, said: "Bermudians should certainly be concerned. The rate of inflation has been steadily accelerating since the turn of the millennium.

"While the rate has been slowing in other OECD countries, it has been increasing here. We have been moving in the wrong direction, as far as the consumer price index is concerned.

"The cause of that is an overheating economy. And we can see that is happening from the way the money supply has been growing in recent years. The M3 (including savings deposits as well as currency in circulation) has been rising at a rate of nine to 11 percent per year.

"That growth is now making its way through to the CPI (Consumer Price Index).

"The CPI is up mainly because of price increases on the service side, things like education and health care. There may be good reasons for that. For example, it's difficult to minimise costs in these services by replacing labour with machines."

Mr. Simmons said that the people being hardest hit so far by the inflationary trend were people with children in private education and health care services users. Seniors, often frequent visitors to the doctor's and on fixed income, would be particularly hard hit, he added.

But on the bright side, he said that Bermuda's food prices were actually increasing at a lower rate than those in the US.

Asked whether she was concerned about the latest inflation figures, Minister Cox replied: "The headline rate in September 2004 is higher than we hoped for but in February, you will recall that Government indicated that barring any sharp increases in university and private education costs, then the rate of inflation should moderate in 2004.

"You will see from the September 2004 CPI (Consumer Price Index) release that there was a very sharp increase in the education sector in that month.

"The other cost drivers have been the continuing increases in oil prices and health care costs. However, food, rent and clothing prices have remained fairly stable throughout this year and continue to track in the range of 1.5 per cent to 2.5 per cent."

Large increases in the cost of oil had also had a major impact on the inflation rate and could continue to do so, Ms Cox added.

"If oil prices continue to rise then the upward creep in the headline rate will continue," she said. "While the monthly headline rate has reached 3.9 per cent year-over-year, the underlying trend rate is around 3.4 per cent for the year.

"On this track, we expect that the average level of price increase in 2004 will be about 3.5 per cent, compared to the average of 3.2 per cent in 2003."

Dr. Gibbons pointed out that senior citizens were particularly vulnerable to the effects of inflation.

"This is going to have a particular impact on seniors," he said. "Even though Paula Cox increased the contributory pension fund benefits by nine per cent, or by 8.75 per cent according to many seniors, the 3.9 per cent rate of inflation effectively halves the value of the increase they get.

"There is also an impact on businesses and the cost of doing business in Bermuda. I think we should be worried, because we are already considered an expensive place to live, both by those who live here and by international companies.

"Price increases in Bermuda are outpacing those in the US and Canada ? the countries where most of visitors come from ? so we are becoming more expensive as a tourist destination."

He claimed the Government had contributed to inflation by increases in public spending.

"In the Budget Speech in February, Paula Cox predicted that inflation would stabilise at around three per cent this year," Dr. Gibbons said, "so they are considerably off-target.

"In our reply, we warned that the $775 million in capital and operational spending in the Budget ? an increase of 6.4 per cent, double the inflation rate at that time ? would have a major impact.

"In addition, some of the recent wage settlements we have seen have been above the rate of inflation.

"Inflation is putting extra upward presure on rents, the price of goods and labour costs. It's a vicous cycle and that's why I'm so concerned when the Government increases its spending."

Minister Cox said the Government was making moves to curb public spending.

"Government adopts a measured approach towards management of the public purse," she said. "Government has taken active steps to curb the expansion of public expenditure so that only those programmes that meet Government's policy priorities in education, health care, public safety, youth development and so on are funded.

"Government also takes a phased approach to capital expenditure so as not to overheat the construction sector."

And she denied that generous pay settlements had had any inflationary effect.

"Recently, a comment was made that Government's salary agreement with the Bermuda Public Services Union was inflationary. The comment was based on faulty analysis because the salary settlement was well within the bounds of the current growth rate in the economy and therefore could not have an inflationary impact.

"In nominal terms, the current growth rate in Bermuda's economy is somewhere in the range of six to seven per cent.

"In other words, the rate of economic growth is higher than the CPI which measures the change in price levels of a fixed basket of consumer goods and services including services that are purchased overseas.

"That means that the Bermuda economy is experiencing a reasonable level of real growth which is not dissimilar from the experience in the US, UK and Canada."

"Many of the cost drivers that are pushing up the inflation rate are external to Bermuda. As such, Government has no control over these factors."