When civil servants were granted a 4.5 percent annual salary increase last year, there were concerns that this would be a benchmark for other raises, and could have an effect on inflation.

Finance Minister Paula Cox dismissed the fears, and said Government could afford the increase because of the growth of the economy.

Yesterday, for the first time since 1991, the rate of inflation passed the four percent mark, which Ms Cox had described as the "worst case scenario" just last month in her Budget Statement.

One would have thought that Bermuda's entrance into the "worst case" would have been accompanied by calls for fiscal restraint, both on prices and on wages.

Not so. There was only silence on the issue.

And what's worse, on Friday Ms Cox tabled the proposed wage increases for MPs and Senators which will give them the same 4.5 percent increase given to civil servants; the same "benchmark" Ms Cox rejected last year. The increases are due to be debated later this week.

Bermuda's inflation is running about one percentage point higher than the comparable rates for the US and the UK and about two percentage points (or twice as fast) as Canada's.

Why does that matter? If the same good cost $100 in Bermuda, the US, the UK and Canada a year ago, it would now cost $104 in Bermuda, $103 in the US and the UK and $102 in Canada. That may not seem like much, but if it continues over a number of years, the "miracle of compounding" will ensure that Bermuda will very quickly become drastically more expensive.

This has grave ramifications for the Island's long term competitiveness. While the Island's business partners and visitors accept that Bermuda is more costly than North America or Europe simply because of its geography, that does not mean the rate of price increases should be running anywhere from 50 percent to 100 percent ahead of its main trading partners.

And price, inevitably, decides where people decide to do business or to take their holidays. Service quality, infrastructure, the friendliness of the people, stability and all of the reasons rolled out for why Bermuda is favoured will mean nothing if the Island is "just too expensive".

It is true that inflation increases have largely been caused by factors like the hike in oil prices and the weak US dollar over which Bermuda has little or no control. But the same problem has affected Bermuda's trading partners too and their inflation rates remain below ours.

That is because the underlying inflationary pushes in Bermuda are too high and need to be dampened if the Island is to continue to thrive.

It would be nice to think that the Island's politicians would take the lead in showing wage restraint by tying their wage increases to the average rate of inflation for 2004.

Indeed, that was what was supposed to happen. Until 1995, politicians had their salaries increased occasionally rather than annually and this would result in predictable storms of protest when their pay was hiked by 20 percent or more. So a bipartisan committee rightly agreed to raise salaries each year by the annual rate of inflation. That worked well until this year, when mysteriously, the increase is 4.5 percent, not 4.1 percent (January's rate, which they didn't even know about), not 3.8 percent (the rate in December) and not 3.6 percent (the average rate for 2004).

It can be argued that it doesn't really matter. With 47 legislators, the increases amount to a little more than $100,000, which is a fraction of one percent of the Budget. More than that gets stolen from the Government each year.

But the taxpayers pay their representatives, and it would be nice, just once, to see the Island's politicians lead by example, especially on wages and price controls. After all, the Government did not see anything wrong with placing thousands more homes under rent control or implementing an overnight ban on Bermudians selling their homes to foreigners. Regardless of the merits or demerits of those policies, some people's incomes were hurt as a result.

Having forced income restraint on taxpayers, surely it wouldn't be too much to ask politicians to voluntarily swallow the same pill?