confronting many local businesses.

Kentucky Fried Chicken (Bermuda) Ltd. reported that its sales increased last year, but expenses, particularly from wages and salaries had increased more quickly.

The result was a higher profit, but the company did not return the kind of result it believed it could or should have.

"On the one hand there is customer resistance to price increases to cover this cost (higher wages) and there is, on the other, an unrelenting demand for increased salaries which will increase the cost of payroll taxes, pension plans and other levies such as health insurance and social insurance,'' the company said.

That, in a nutshell, is the problem that more and more local companies face.

Bermuda is an expensive place to live in and it is expensive to bring in goods, many of which attract Customs duties which must be paid upfront before the item is even on the shelf, let alone sold.

High housing costs, high transport costs and high food costs mean that employees seek more in pay, which in turn drives up the costs of goods, unless the increase in pay is accompanied by an increase in productivity.

But when the customer (the same person who needs the pay increase) sees the cost of local goods, they resist the price, choosing to buy abroad, either in person or via catalogues and the Internet.

That reduces the local business' sales further, yet the business operator is still faced with demands for higher pay. The eventual result: The business puts people out of work, or the business shuts down. Then the employee must find another job.

This is a general description. Customs duties are not charged on all goods and rates vary on those which do fetch a tariff. But virtually every business has to import goods to sell, resulting in higher costs than a rival in North America.

Government has recognised this problem in the hotel industry where it now offers tax relief. But other sectors of the business community face the same problems and get none.

Those companies will have to make hard decisions about employment in order to remain viable. If they do not and the company goes bust, the now unemployed worker will find that the skills which were useful on the sales floor or in a hotel have little value.

It would be easy to dismiss these arguments as those of businessmen who want to squeeze more profit out of the poor worker and the poor consumer. That seems especially true in an economy in which everyone who wants to work can.

But the facts are there for anyone who wants to see them. There are fewer hotels than there were a decade ago. There are fewer shops (or one shop replaces another on the same site every few months). Small business owners across the Island bemoan the difficulties of maintaining reasonable margins and finding and retaining good staff.

These are warnings, admittedly in a still-healthy economy, that all is not well. Hard decisions will have to be made as the Island moves towards another winter or the combination of price resistance and inexorably rising costs will slowly strangle the Island.