Government has come under fire for failing to tackle the problem of soaring inflation after the inflation rate peaked at a 19-year high of 4.8 percent.

According to the latest Consumer Price Index report released by the Department of Statistics on Monday, the annual rate of inflation in November 2007 equalled its previous high of 4.8 percent from May 1988.

Allied to this, last Thursday, The Royal Gazette revealed that Bermuda has the highest gross domestic product per capita in the world after it rose by 10.3 percent, with the the Island generating $5.35 billion of wealth or $83,935 per person in 2006, coming at the cost of increasing inflation, according to economic experts.

Craig Simmons, a lecturer on economics at Bermuda College, agreed that the current inflation situation looked bleak, claiming that while the Island had managed to avoid the issue due to lower oil prices in the past, it was now paying for the spiralling cost of fuel.

"The problem of inflation is similar to being overweight," he said.

"Weight problems aren't created instantaneously, nor can they be fixed that way. For more than a decade, Bermuda has dodged the inflation bullet through low oil prices, through innovation in information technologies (IT), and by importing cheap foreign labour for the construction, financial services and hospitality sectors.

"Oil prices are set to rise further because of growing global demand, especially from China, and because of high levels of consumption, particularly by the US. Since 2005, energy prices in Bermuda have risen faster than any other.

"The beneficial effect of IT innovation in keeping costs and therefore inflation down has already worked its way through the economy. Similarly, the comparative advantage of using foreign labour has all but disappeared because of high housing and recruitment costs. The net result is that there is considerable pressure on inflation to rise further."

Mr. Simmons said that, on the demand side, Government spending has "aided and abetted" inflation.

"Over the last five years, Government spending has grown faster than the private sector and more disturbingly, has crowded out or displaced private construction projects, making it difficult for Bermudians to find or afford plumbers, electricians, masons, etc," he said.

"There is some relief coming from a significant reduction in public sector construction, but the Government's disrespect for fiscal prudence is alarming, especially in light of election promises."

And he called on Government to start taking the matter of inflation seriously and to tackle the problem head-on.

"Despite clear evidence of an overheated economy, successive Government Budgets do nothing to slow the flow of spending," he said.

"Most sophisticated governments aim for price stability and full employment. Whilst there is a trade-off between these two policy objectives, the Bermuda economy has the luxury of more than enough jobs for her people.

"To push the economy beyond the full employment level is just bad economic management.

"Bermuda's vulnerability to supply shocks is high. Workers will be tempted to demand higher wages or worse, withdraw their labour. Higher wages will provide only temporary relief, until these higher wages lead to higher prices which in turn lower real wages.

"Government will be tempted to accommodate supply shocks by raising public sector wages with the increasing rate of inflation thereby setting an un-needed example of wage discipline. As with weight loss, the solution rests with a disciplined and unfortunately painful therapy of reduced consumer, construction and Government spending, as well as fewer overseas vacations."

Meanwhile, Senator E.T. (Bob) Richards claimed the findings are in line with what he has been saying for the past two years about Bermuda suffering from an overheating economy."I have been singing this song and beating this drum of an overheating economy for over two years and the facts are just bearing up what I have been saying all along," he said."It is not good for Bermuda, particularly because excess economic growth does produce inflation."He pointed to an increase in credit and lending on the Island in addition to a considerable number of new construction projects springing up throughout the country as the main contributors to the issue."I believe it is being encouraged by the excess growth of the money supply and credit and all of these ingredients are there to produce increasing inflation," he said."I don't know that anybody really wants to knows how to slow that down. But we have to try and control the things that are within our control."And, Mr. Richards said, on the monetary side, there has been an accelerated growth rate in the amount of loans being taken out in Bermuda."That is within our control because most of the credit inBermuda is produced by global banking institutions, but nobody wants to touch that with a barge pole."If we have excess credit, which I think we do on this Island, that excess credit has come about through the lower interest rate regimes and lenders in Bermuda find it more profitable to lend locally rather than put it in the money market type vehicles."In the last year a lot of money market vehicles which people thought were iron clad safe, were not as iron clad as they thought."All of these facts have led to increased lendings on Bermuda dollars and all of that increases the amount of money washing around and pushes up prices."