Inflation jumped to its highest level in 14 years in September as soaring health, education and transport costs drove prices up.

The annual rate of inflation for September was 3.9 percent - the highest since August, 1991 and the eighth straight month that the rate has increased over the previous month.

In August this year, inflation was 3.8 percent.

However, Finance Minister Paula Cox said yesterday in an e-mailed response to media questions that core inflation for food, rent and clothing prices had remained reasonably stable.

And she said she did not expect the average rate of inflation for the year to exceed 3.5 percent.

The Department of Statistics blamed the price surge primarily on education costs, which increased 6.2 percent month over month and a whopping 9.8 percent year over year. Prices for local private schools soared 13.6 percent compared to August, overseas college fees rose by 6.9 percent and fees for extra-curricular recreational lessons jumped by 11.4 percent.

Health and personal care costs rose by 0.1 percent month over month, but are 9.8 percent higher than they were a year ago. The monthly increase was blamed on a 0.4 percent increase in prescription medicine costs and a 0.3 percent increase in off the shelf medicine prices.

Meanwhile, the increase in taxi fares in September drove up the transport sector. Taxi fares rose an average of 19.4 percent month over month, while the average price of premium gas was up four percent as a result of record oil prices.

The sector as a whole registered a 0.7 percent increase month over month and a 6.1 percent increase compared to September, 2003.

The other sector contributing to the increase was tobacco and liquor, which recorded a 0.2 percent increase from August, but a 6.4 percent increase year over year. The September increase was attributed to a 0.8 percent increase in the price of liquor.

Overall, inflation has now increased each month since January when the annual rate of inflation was three percent. Government estimated in the February Budget that inflation for 2004 would be 3.2 percent. For the year to date, the average is 3.41 percent.

In addition, Bermuda's inflation continued to outstrip the inflation rates of the Island's main trading partners, the Department of Statistics said.

In September, the US inflation rate was 2.5 percent, the Canadian inflation rate was 1.8 percent and the UK inflation rate was 3.1 percent.

Ms Cox said: “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 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 percent to 2.5 percent.”

Asked if she expected inflation to increase through the end of the year, she said that if oil prices continued to rise, “the upward creep in the headline rate will continue”.

But she added: “While the monthly headline rate has reached 3.9 percent year-over-year, the underlying trend rate is around 3.4 percent for the year. On this track, we expect that the average level of price increase in 2004 will be about 3.5 percent, compared to the average of 3.2 per cent in 2003.”

Ms Cox also downplayed concerns that the higher rate of inflation in Bermuda compared to its major trading partners was making the Island uncompetitive.

She said: “The CPI rate by itself does not say much about the entire Bermuda economy. In fact in nominal terms, the current growth rate in Bermuda's economy is somewhere in the range of six-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.”

And she denied that recent wage agreements - including the 4.5 percent pay increase given to civil servants this month - was inflationary and could be a benchmark for future pay settlements.

“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,” she said.

“It may be useful to note as a separate issue that Government adopts a measured approach towards management of the public purse. 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 said many of the factors, like oil prices, affecting the inflation rate were external over which Government had no control.