Prices rose at an average rate of 3.5 percent last year ? half a percent more than Government expected.

The average inflation rate for the year was driven by soaring fuel prices, which rose 6.2 percent year over year and health and personal care, which jumped ten percent.

But there was some good news for consumers as the December inflation rate held at 3.8 percent, the same as November.

Nonetheless, the news will be disappointing for Finance Minister Paula Cox, who predicted in the February, 2004 budget that average inflation would fall back to 3.0 percent for the year after jumping to 3.2 percent in 2003.

Ms Cox has since noted that if the surge in oil prices last year and a spike in education costs in September were taken out of the Consumer Price Index, the underlying rate of inflation would have been roughly in line with Government's estimates.

Bermuda's inflation rate also continued to exceed those of its major trading partners. Inflation in the US was 3.3 percent in December and 2.7 percent for the year, Canada's prices rose 1.9 percent in December and 2.1 percent for the year, while the UK recorded a three percent inflation rate for December and a 3.5 percent rate for the year.

For December, Bermuda's inflation rate of 3.8 percent was driven by food prices, which rose 0.6 percent compared to November and 2.9 percent year over year.

Rents increased 0.2 percent for the month and are up 2.6 percent for the year. Rents for properties under rent control jumped 0.7 percent, but this increase was largely technical as more properties were added to the controlled sector by Government during the month.

The health and personal care sector also recorded a jump in December, rising 0.2 percent for the month as prices for women's hairstyling, manicures and massages rose.

December price increases in December were offset by a decline in oil prices. That reduced the price of gas at the pump by 0.7 percent for the month by 5.4 percent. The fuel and power sector, which includes electricity costs, was flat, although it is up 4.5 percent year over year. Similarly, the transport and vehicles sector is up 4.2 percent year over year.

However, the fuel and power is likely to see an increase in January, since Belco Holdings Ltd. was granted its first increase in its base electricity rate in nine years.