Opposition Leader Grant Gibbons is right to raise concerns about Bermuda's rate of inflation, which soared to 3.8 percent in September, the highest level in 12 years.

It is a sign that while the Bermuda economy remains relatively robust, it is showing signs of weakness at a dangerous time.

While much of the gain in September was attributed to higher education costs, and it is possible that some prices spiked temporarily after Hurricane Fabian, the fact remains that Bermuda's prices are rising more quickly than those of its major trading partners.

The US inflation rate for October was two percent, almost half of Bermuda's. The UK rate was 2.7 percent. The rate for "euro-zone" countries was 1.4 percent. Canada's inflation rate was 2.2 percent in September.

That means that people wishing to trade with Bermuda, either for international business or for vacations will be spending money more quickly than they would at home.

And it also means that Bermuda is becoming more expensive than its competitors. In the long run, that makes Bermuda less competitive. A potential visitor will have even more reason to go to Florida instead of Bermuda. An international company looking at possible domiciles will work Bermuda's higher costs into the equation.

The problem with inflation is its tendency to spiral. While most pay increases in the last few years have been around three percent, if Bermuda's inflation remains at levels of 3.8 percent or more, the next wage awards will be higher. Then businesses (and Government) will have to raise prices in order to cover the higher expenses and inflation will continue to rise.

For now, the Bermuda economy will not suffer, in part because Fabian has created a mini-boom in the construction industry. Because of the damage from Fabian, Bermuda is in fact awash with money; it has received an injection of some $200 million in insurance pay-outs, offsetting the September collapse of tourism.

But that boom must be short-lived because it is a windfall and construction, the primary beneficiary, is not a foreign exchange earner. Indeed, a lot of the money will go overseas to pay for materials.

In the meantime, the structural problems of tourism remain and no real recovery can be expected until at least spring next year when the Fairmont Southampton and a scaled-back Sonesta Beach re-open.

Nor is the picture much better for international companies. Although the sector is growing ? unlike tourism ? the rate of growth is slowing, at least according to the latest available statistics from the first quarter of 2003. The number of mutual funds registered in Bermuda has fallen, due no doubt to the decline in global stock markets.

The number of international companies and insurance companies incorporating in Bermuda is also slowing.

To be sure, the sector as a whole is robust, and earnings, especially from insurance companies, continue to improve. But these are worrying signs that all is not well and contradicts the sunny outlook on the economy issued by Finance Minister Eugene Cox earlier this month.

Mr. Cox may yet be right. But in the long term, Bermuda needs to watch inflation carefully to ensure the Island does not price itself out of its two key businesses.