The Consumer Price Index, a closely watched inflation gauge, reported that housing costs in Honolulu rose 1 percent while clothing prices climbed 6.5 percent and food costs were 2.4 percent higher than a year ago.

Experts say the increase in consumer prices, while not always welcomed, can be seen as a sign of an improving Hawai'i economy.

"There certainly is a relationship between price changes and the overall economic performance," said Todd Johnson, a Labor Department economist in San Francisco.

Johnson said consumer price increases in Hawai'i were "middle of the road," which he said was good for the state. Prices that increase too quickly can erode savings and increase costs for consumers. But Johnson said prices that do not rise at all can cause stagnation, choking off economic activity and investment, which happened in Hawai'i through much of the 1990s.

Nationally, U.S. consumer prices rose less than expected in July, as lower costs for air travel and clothing tempered a surge in medical care costs, the Labor Department said today in a separate report.

The 0.1 percent gain in the U.S. consumer price index matched the increase in June and was half the 0.2 percent rise expected by economists. Excluding volatile food and energy costs, the index rose 0.2 percent after rising 0.1 percent the prior month.

"We have an economic environment in which there's the virtual absence of price pressures," said William Sullivan, senior economist at Morgan Stanley in Jersey City, New Jersey.

With inflation tame, Federal Reserve policy makers are able to keep their benchmark overnight bank lending rate at a four-decade low to ensure the economic recovery picks up steam.

"Inflation pressures remain dormant, allowing Fed officials to concentrate on sustaining the economic expansion," said Jade Zelnik, chief economist at Greenwich Capital Markets Inc. in Greenwich, Conn.

Of the nine sectors tracked by the Labor Department in Hawai'i, only two declined during the last six months. Transportation costs fell, largely on cheaper gasoline prices which declined about 13.6 percent during the period, and recreation costs.

In Hawai'i, clothing was the main reason for inflation during the first half 2002, with the prices climbing 3.8 percent since the end of last year. This followed a 2.6 percent rise in the second half of last year that reversed a three-year downward trend in clothing prices.

Overall, the increase in prices meant that a basket of goods and services that would have cost $100 in 1982-84 in Hawai'i cost consumers $180.10 during the last six months.