Monday's retail sales report for April confirms that Bermuda's economy remains in trouble, at least for the first half of this year.

What is especially worrying is that the continued weakness of the retail sector comes at the same time that the annual rate of inflation is increasing – to 2.9 percent after being as low as 0.2 percent in September last year.

Rising inflation coupled with sagging sales is a disastrous combination, as the April figures demonstrated. The Retail Sales Index fell by eight percent in April before inflation. After inflation was taken into account, the volume of sales fell by 10.3 percent, the deepest monthly decline in at least 13 months and probably much longer.

The spike in inflation was blamed mainly on rises in insurance premiums, which in turn were driven up because Government has shifted more of the cost of medical care off its shoulders and on to the patient's. It is argued that that does not mean the cost of health care has risen, only that the means of repayment has been rebalanced. But there been no reduction in Government spending or taxes. Thus, the overall cost to the consumer has risen as insurers have increased their premiums. That rise in costs hurts the economy because consumers have less to spend and because businesses will pass the increased costs on in their pricing as well. At the same time, there's plenty of evidence that the two main foreign exchange earners in the economy, tourism and international business, are continuing to lag, albeit for different reasons.

For tourism, first quarter arrivals were especially disappointing since the US was beginning to recover from recession. But the real proof will come in this quarter. Anecdotal evidence suggests that May was reasonably strong, but that activity seems to be a bit slower this month. The Newport Race may offset that, however. In international business, there are signs that incorporations and overall activity is better than it was a year ago. But there are continued reports of companies shifting offices overseas or not hiring in Bermuda.

At the same time, contrary to predictions, tax threats from the US continue unabated, and if anything are getting stronger. The lack of strong growth in international companies is demonstrated most clearly by the amount of vacant office space around Hamilton and the drops in rental prices and home prices.

For those people who have struggled to meet the Island's high rents, or have come to believe they will never be able to afford a home of their own, that may sound all right, but it also means that there is less money circulating in the economy, which in turn means less being spent on goods and services, which in turn puts pressure on wages and jobs, so no one really wins.

Finally, the fact that Government has not yet been able to meaningfully reduce its own spending, or its cost to the taxpayer, continues to weigh down on individuals and businesses. It can be argued that this is not the time to make unemployment worse, but the opposite risk is also true. Government's failure to cut spending and reduce its debt burden may extend the recession. In time, the recession should start to end. But it is disappointing to see so little public discussion on how the economy needs to change and to develop new sources of revenue (apart from the chimera of gambling).

It was not that long ago that Government had a Micawber-like belief that something would turn up to help the economy, as agriculture had replaced salt and shipbuilding in the 19th Century, tourism had replaced agriculture in the mid-20th Century, and international business had started to replace tourism in the late 20th Century. But those changes took work and forethought. Both are lacking now.