Consumer prices up slightly in state

By John Duchemin
Advertiser Staff Writer

Pricier groceries and restaurants pushed consumer prices in Honolulu slightly higher in the second half of 2001, up 1.1 percent from levels a year earlier amid some of the worst economic conditions to hit Hawai'i.

But the price increases are negligible, experts said, and are another sign that the state's economy is still in a mild recession because of the economic shocks of 2001.

"That rate is not surprising; you expect very moderate inflation when there's economic weakness," said Byron Gangnes, a University of Hawai'i economics professor.

A slower economy can keep prices down because less money is circulating, incomes aren't increasing as quickly and consumers become more cost-conscious. Still, the downturn since the Sept. 11 terrorist attacks has not brought "deflation," or a wholesale drop in prices, which happened in 1998 at the tail end of Hawai'i's long 1990s stagnation.

The low inflation is in line with the recent trend, during which prices for most goods have stayed down despite an improving local economy.

Average prices in 2001 grew 1.2 percent — only slightly slower last year than in 2000, when they increased 1.7 percent, according to the U.S. Bureau of Labor Statistics. The bureau calculates average prices by tallying the price of a "basket" of typical consumer goods.

The Hawai'i rate was also lower than inflation on the Mainland, where average prices rose 2.8 percent last year. "Inflation remains muted and manageable," said William Sullivan, senior economist at Morgan Stanley Dean Witter & Co. in Jersey City, N.J.

In Hawai'i, food was the main reason for inflation in 2001. In the second-half 2001 survey, Hawai'i grocery prices were 4.7 percent higher than in 2000, while restaurant meals and other away-from-home food were 3.7 percent more expensive.

Other prices dropped from year-earlier levels, with apparel down 0.3 percent, fuel down 3.4 percent and utilities down 2.9 percent.

Housing costs increased 0.4 percent overall — a result Gangnes called surprisingly low, given a generally healthy home resale market and a shortage of rental units.

Gangnes said the inflation rate was in line with previous forecasts.

Bloomberg News Service contributed to this report.