At first glance, last week's announcement of strong growth in the Island's economy in 2006 was contradicted by Monday's report of soaring local inflation. In fact they represent different sides of the same coin.

The Finance Ministry 's report on Bermuda's gross domestic product for 2006 said growth in that calendar year was more than ten percent before inflation was taken into account. On the face of it, that's good news. It is much better to be living in an economy that is growing than in one that is not. It meant that in 2006 profitability and productivity were generally strong, jobs were being created and incomes were rising.

The bad news, as Bermuda College lecturer Craig Simmons pointed out in this newspaper on Monday, is that too much growth may be unsustainable and will drive up inflation, meaning that prices are rising as fast or faster than incomes.

Coincidentally, Mr. Simmons got his justification the very same day when the November, 2007 Consumer Price Index was released, showing that the annual rate of inflation had risen to 4.9 percent – the highest rate recorded since 1988.

That figure dramatically pointed up the problem the Island faced throughout 2007 as inflation had steadily tracked upwards.

To be sure, the fundamental cause of higher prices has been the dramatic increase in the price of oil, over which Bermuda has very little control.

But it is also likely that the Island's rapid growth also has a lot do with it, as increases in money supply tend to drive up all prices, leading to increases in wages, which leads to increases in prices – the classic inflationary spiral.

The only proven way to control inflation is to reduce demand, and the normal tool for doing this is to increase the cost of credit by raising interest rates. Price controls, as Zimbabwe is currently demonstrating all too well, just do not work.

The inflationary problem for Bermuda is compounded by its finite size and social and political considerations that demand that the Island needs to control its population growth. Most economic growth leads to the creation of more jobs, which in turn places more pressure on the Island's infrastructure.

That's not to say that growth is bad. Anyone who remembers the recession of the early 1990s – which was not that severe by global standards – will know that a shrinking economy or a flat economy does extraordinary damage. But sustainable growth is another matter. It dampens inflation and keeps the economic engine that is Bermuda ticking over without strain.

Of course, accomplishing that is another matter. How you control growth without forcing a recession is a delicate question, but allowing runaway growth is as or more dangerous.

That's why this newspaper dislikes the Premier's plans for not one new hotel development – which may well be needed – but four or five.

The heavy demands that this would place on the infrastructure and the sort of inflationary pressures it would create could end up hurting the very people it was designed to help – the poor and people on fixed incomes who suffer most when prices rise.