There were two pieces of news about the economy this week, one good, and one not so good.

First the good news: Fitch Ratings Agency this week affirmed Bermuda's high sovereign debt ratings and gave generally high marks to the Island both for the strength of the economy and how it is being managed.

The direct effect of that is to enable the Bermuda Government to borrow money at reasonable rates from international lenders. And creditworthiness, as anyone who has gone to the bank to borrow money for a house knows, is worth a lot.

More broadly, the rating, and similar ones from agencies like AM Best and Standard & Poor's, gives the Island a "Good Housekeeping Seal of Approval", encouraging other overseas investment and generally showing that the Island is a safe haven. In times of economic difficulty, and the recent market turmoil suggests that the US at any rate, may be headed for some problems, that's a good thing to have.

The agency rightly notes that international business is the largest contributor to growth in Bermuda's economy.

"The country's success at maintaining its reputation as the domicile of choice for insurance and financial services companies should provide the basis for sustainable growth going forward," it said, adding: "Limited information about the debt of foreign-owned entities residing in Bermuda remains the key rating constraint, even though these liabilities are highly unlikely to affect Bermuda's public finances or the domestic financial system."

It also issued a mild warning: "Bermuda's economic narrowness and its ties to the US economy could represent a modest risk to economic growth, though market conditions for the global reinsurance sector in particular, remain supportive."

So even with the caveat that the Island is heavily dependent on one sector, which in turn is dependent on the strength of the US economy, the report is a good one, and no doubt Finance Minister Paula Cox will add it to her arsenal when she promotes Bermuda abroad and when she defends Government's economic record at home.

There's nothing wrong with that. Governments tend to be blamed when the economy goes sour, so it has a certain entitlement to take the credit when it is strong, even if some of the reasons are beyond its control.

However, that does not mean all is well. Yesterday also saw the release of the July consumer price index, which showed that for the second month in a row, the annual rate of inflation was above four percent.

After hitting four percent in June (the highest rate in more than a decade) , it surged to 4.3 percent last month.

The main reason, though not the sole one, for the increase lay in the rise in oil prices, which affects both the price of gasoline at the pump and the cost of electricity. Indirectly, this increase works its way through all prices, however, because it affects the cost of importing goods, overseas travel, the provision of all services from shops to schools to health care.

Government historically has said that fuel prices are out of its control and points to the underlying inflation rate with fuel stripped out. It is true that Bermuda and the Government cannot tell OPEC or the oil companies what prices to charge for fuel. But it does have the power to offset its effects, either through a reduction in import duties for fuel itself, or through reductions in duties and taxes elsewhere.

It can be argued that all economies are in the same boat when it comes to inflation, since all are affected by the price of oil. But Bermuda's inflation rate historically runs ahead of its major trading partners, and this is worsening. In July, the US inflation was 2.2 percent and Canada's was 2.4 percent, so the Island is running almost two percentage points ahead, or roughly double the rate.

That has long term ramifications for Bermuda's competitiveness, and this will inevitably worsen if this is a consistent trend and starts to feed through to salaries and other costs of doing business.