Any notions that Bermuda could be somehow immune from the global economic downturn have been well and truly dispelled in recent months.

With inflation having reached an 18-year high this spring, electricity bills more than 20 percent higher than they were a year ago and gasoline costs going through the roof, it is fair to say we're feeling the bite.

And when even the wealthy global companies that dominate our international business sector are tightening their belts and shedding jobs, it's clear that a global crisis is now close to home.

"It's the economy, stupid!" — a phrase made famous during Bill Clinton's successful 1992 US presidential campaign — could aptly answer the question of what the population is most concerned with at the moment.

Today, The Royal Gazette's Business section is largely devoted to looking at how the economic situation is impacting different industries and hearing from members of the business community how the downturn is affecting them.

How did the global economy get into this mess? It all stemmed from the US sub-prime mortgage crisis, which started with often unscrupulous lenders loaning out money to borrowers who have proved unable to pay it back.

When bloated property prices finally began to fall, a wave of loan defaults and delinquencies swept the US.

The knock-on effect was felt by the Wall Street investment banks who had pooled this mortgage debt into structured financial products, which allowed institutional investors to earn a good rate of interest. That worked just fine as long as property prices kept rising, interest rates remained low and borrowers met repayments.

With hindsight, it is easy to see that these structured investment vehicles backed by mortgage debt were high-risk investments — even a disaster waiting to happen. Yet the credit rating agencies routinely gave them AAA credit ratings which lured investors into piling in the billions.

The now year-old 'credit crunch', which has developed as institutions and individuals alike have found it increasingly difficult to borrow money, is a side-effect of the sub-prime contagion. It has hampered the ability of the global economy to recover from its downturn and there are few signs that the end of the pain is near.

Banks, in the US and beyond, have paid a heavy price, writing down the value of dwindling investments connected to the crisis by a combined $500 billion.

US President George W. Bush summed up the views of many, when, in an off-the-cuff remark uttered at a fund-raising event and captured on a cell phone video camera, he said: "Wall Street got drunk and now it's got a hangover." Unfortunately, we're all sharing the headache.

The falling value of the US dollar may have helped Bermuda's tourism sector, as Americans, who make up the vast majority of our visitors, look for a vacation destination where they can spend their own currency. It has also made Bermuda seem less expensive for UK visitors and those from the euro-zone.

But the other side of the dollar coin is the rising price of oil. As crude is globally traded in US dollars, the price rise, fuelled by soaring demand from developing economies, has been steepened by the falling value of the dollar.

The rising price of oil has had a noticeable impact on Bermudians' pocketbooks. After it was announced in June that the April inflation rate reached 5.3 percent — the highest figure since 1990 — Finance Minister Paula Cox said the price of oil was a major factor.

"The rising prices for oil and food are interconnected," she said. "Rising oil prices increase the costs of producing and transporting food and many other commodities. This in turn raises the prices of food and other consumer goods. These are difficult economic circumstances and the long-term challenge for the world, including Bermuda, is to explore ways to reshape our economies to operate with less oil."

The June inflation rate fell back to 4.4 percent. But as anybody who has kept track of the fuel adjustment figure on their Belco bill will appreciate, the fuel and power sector, with costs 22 percent higher year on year, has been a major driver in rising prices. Food prices are nearly five percent higher. Virtually all the goods we consume are shipped in from somewhere else, so the Balance of Payments figures, which showed that the value of imported goods rocketed by almost $70 million in the first quarter, were telling.

Businesses are being pinched from all sides. Overheads are rising, employees want higher wages so they can keep up with the rising cost of living and, for some, revenue is taking a hit from declining sales. The volume of retail sales fell four percent, after taking inflation into account, according to Retail Sales Index figures for June.

Jobs are inevitably becoming less secure. Figures released by Government this week showed that the Island's workforce grew in 2007, adding 165 extra jobs. That pattern is unlikely to be repeated in 2008.

While the credit crisis shows no signs of abating, at least the dramatic fall in crude oil prices in recent weeks from its peak of $147 a barrel to $122 yesterday represents a glimmer of hope for Bermuda.