'Price of Paradise' shrinks
By John Duchemin
Advertiser Staff Writer
Honolulu prices slowly crept upward in the first half of the year in a sign of gradual economic growth and another indication that the "price of paradise" is continuing to shrink.
The Honolulu Consumer Price Index, a federal measure of prices in Hawai'i, rose 1.1 percent through June from the previous year's level. That means $100 worth of goods bought in Honolulu in early 2001 would have cost about $101.10 this year, according to a U.S. Bureau of Labor Statistics report released yesterday.
Hawai'i's annual inflation has averaged about 1 percent for six years, meaning prices overall have been unusually steady, despite fluctuations in particular areas like gasoline. By contrast, the average inflation rate on the U.S. Mainland has been about 2.5 percent over six years.
The low Hawai'i rate means the extra amount residents pay to live in the Islands — the so-called price of paradise — has dwindled significantly.
"The gap in costs between the Mainland and Hawai'i has been narrowing for many years, and is certainly nothing like what it was before," said Paul Brewbaker, chief economist at Bank of Hawai'i.
The news overall is positive for local consumers: While price increases may have been noticeable in some areas, they're not enough to force most residents to change their habits drastically.
"Some prices are definitely going up, but it's not like I'm not buying anything because of it," said Honolulu resident Angela Palmer, 26, a University of Hawai'i student and sales clerk at an Ala Moana store.
In the early 1990s, when Honolulu prices rocketed up by 6 percent or 7 percent every year, Hawai'i residents were finding their costs rising much more rapidly than on the U.S. Mainland. In recent years, however, Honolulu prices have stabilized so much — and dropped in many key areas, like housing and clothing — that many Mainland locales are catching up.
Some cities — including Boston, New York and much of California — have become considerably more expensive. According to several cost-of-living measures, it's now 20 percent to 30 percent cheaper to live in Honolulu than in many major cities. A $100,000 income in Sacramento, for instance, will buy you about as much as a $77,400 income on O'ahu, according to Bankrate.com, an online company that monitors rates, prices and costs in cities nationwide.
Those cities' prices rose as their economies boomed. With the boom came rising land values and rents, and more consumer spending as residents flocked to shops and restaurants. Honolulu, by contrast, was economically stagnant; this helped hold prices down. The collapse in housing prices and the introduction of big-box retailers selling inexpensive goods also helped.
Brewbaker said it's also relevant to compare total inflation.
If someone bought $100 worth of goods on the Mainland in 1983, they would have to spend, on average, $174.90 now, according to the Bureau of Labor Statistics. In Hawai'i, $100 then would equate to $180.10 now.
In other words, despite the spell of rapid inflation, Honolulu price gains have only outstripped U.S. Mainland prices by about 6 percent in the past 20 years. And in the fast-growing West Coast cities, prices have risen about 4 percent faster than Hawai'i over the same time, the bureau says.
That doesn't mean Hawai'i prices are only 6 percent higher than the Mainland — $100 in 1983 wouldn't have bought the same amount in both locations. Many parts of the West Coast, the Midwest and the South are about 20 percent to 30 percent cheaper than Hawai'i, according to data by Bankrate.com. But the recent slowdown of inflation still means the state has grown somewhat more competitive in terms of cost of living, Brewbaker said.
In other areas, however, the low inflation brings mixed signals. It's right on track with economists' forecasts that the sluggish economic growth of the last several years is likely to continue in the Islands.
For some businesses, that can be tough. Carol Pregill, president of the Retail Merchants of Hawaii, says most shopkeepers are being forced to discount merchandise steeply and that consumers are only buying items on sale.
"Everyone these days is a value shopper," she said. "Generally, prices go up when there's a supply of cash to spend. Not too many people are buying at full price these days."
Low inflation is often a product of such low demand for goods and services — there simply aren't enough people buying for retailers, restaurants and others to charge top dollar. This has borne out in Hawai'i: Since 1996, as the economy sputtered along with little growth, inflation was rarely above 2 percent. There was even a deflationary period in 1998 as the state suffered through a housing slump and job losses.
That doesn't mean Hawai'i is unlikely to see future price gains if the economy improves. Brewbaker sees a big surge coming in the cost of housing — the state is in the throes of a rental shortage, he says, and low mortgages combined with scant construction have caused home sales prices to surge this year.
This means the cost of renting or owning a home in Hawai'i is likely to continue to increase, Brewbaker said.
Of the nine sectors tracked by the Labor Department in Hawai'i, only two showed price declines during the past 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.
Advertiser staff writer Frank Cho contributed to this report.
