That's the situation Kalena Miyashiro, 37, faces. The operator at the Waikiki Beach Marriott, along with other members of the Hotel Employees and Restaurant Employees, Local 5, will get a 2.5 percent raise this year and 4 percent raise next year.

Miyashiro, who earns $31,000 to $33,000 a year, hopes that's just enough to offset increased costs for goods such as groceries and gasoline.

"It's just about keeping your head above water," Miyashiro said. "I don't really think the increases in pay are going to help."

Last year inflation hit a nine-year high of 2.3 percent.

Personal income in the first three months of this year rose 1.9 percent compared with the preceding quarter and 5.5 percent from a year ago, according to recently released figures by the U.S. Bureau of Economic Analysis. That would seem to be staying well ahead of inflation. However, local economists estimate that after adjusting for inflation, real personal incomes for workers who have had their job more than one year will likely rise less than 1 percent on average statewide this year.

"How many people are getting 3 percent pay raises?" asked University of Hawai'i economist Carl Bonham. "Not many. Most of us won't keep up, if we have

3 percent inflation. The individual worker is on average increasing their real income by less than 1 percent."

'Learn to do without'

As discouraging as that may sound, inflation is a result of a strong economy that is providing job stability, driving up the value of homes and creating new jobs. In June, Hawai'i had the lowest unemployment rate in the nation for the second consecutive month.

"We have the healthy kind of inflation," said Paul Brewbaker, chief economist for Bank of Hawaii. "It's so high because the economy is doing so well.

"People are making money and there's deals being made, but the creeping cancer of higher inflation means that more and more people will be working to stay in place."

Four-year Consolidated Theaters part-time employee Kim Mitman, 22, this year got a raise of 5 cents an hour, or less than 1 percent, to $6.45 an hour. The University of Hawai'i history major said she lives off student loans and part-time work for Local 5.

"As far as purchasing power, I have none," said Mitman, who lives with her parents. "I basically have to be a minimalist — eat peanut butter and jelly sandwiches and eggs and rice.

"You learn to do without and sometimes you break down and say you can't make it and you pick yourself up and you start again."

Union raises

For others, including 1,300 bus employees represented by the Hawai'i Teamsters and Allied Workers Local 996, there will be no raises under a five-year contract signed this year until the fourth and fifth years of the contract. Workers, who went on strike for about a month last year, earn about $44,000 a year.

"It's a trend that people are going backwards," Miyashiro said.

Other workers will fare better this year, including 2,600 officers represented by the State of Hawai'i Organization of Police Officers, who will receive a 4 percent across-the-board increase each year through 2007.

And earlier this year, the University of Hawai'i Professional Assembly reached an agreement with the state and the university that gives faculty a 31 percent pay raise through 2009. The 3,148 members covered under the contract receive a 3 percent raise this year followed by a 2 percent raise next year.

Then there's the prison guards, emergency service workers and licensed nurses covered under a United Public Workers unit 10 contract who'll receive 5 percent pay raises this year and next year per an arbitrated decision.

Higher costs

Those with higher raises should be better able to deal with a myriad of higher costs that include:

• Higher housing prices. The median price for a previously owned single-family home on O'ahu in June surged to a record $481,800, which was up 24 percent from $388,500 in June of 2003. Higher property values mean higher property taxes and insurance rates.

• The average price for a gallon of regular gasoline statewide last week was around $2.33, which was up about 30 cents from a year ago — a 15 percent rise.

• A rise in gasoline prices is driven by higher crude oil costs, which affects the cost of all goods shipped to Hawai'i, as well as what residents pay for electricity. For example, higher fuel oil costs have caused the average monthly residential electricity bill on O'ahu to increase by $2.85, or 3.2 percent, to $92.96, according to Hawaiian Electric Co.

To a certain extent, a rise in the cost of some goods and services is offset by the recent proliferation of large discount retailers in Hawai'i such as Wal-Mart, Home Depot and Costco, Brewbaker said.

"These dis-inflationary, in the good sense, forces are making for much better and smarter buying decisions than before," he said.

Miyashiro, a 37-year-old mother of one, said she buys everything on sale to save money.

"It's just a fact of life," she said.

More sales, expenses

For employers, a stronger state economy means more opportunity to boost sales, but it also increases expenses. A tighter job market means it takes longer to find workers and some employers have to offer higher wages. For jewelry manufacturer and retailer Maui Divers of Hawai'i the cost for health insurance, gasoline and rents for new locations is on the rise.

At the same time the state's low jobless rate means wages have to rise to retain and attract workers, said Bob Taylor, Maui Divers president and chief executive. Last year Maui Divers' non-commission employees got about a 4 percent raise and this year that amount would be about the same or slightly higher, Taylor said.

"I would expect as the labor market gets tighter and tighter we'll see more pressure for higher wages," he said.

Growing economy

Like many local businesses the Ice Palace faces higher costs for shipping goods to Hawai'i, though other costs such as lease and energy expenses have remained stable, in part because of efforts to make the operation more efficient, said owner Doug Taylor.

"Hawai'i is such a competitive place," he said. "There's a lot of pressure on small businesses because there's a lot of duplication of services. To stay competitive they find it more difficult and try to hold the line on wages."

Because higher prices for homes and oil are expected to persist, and Hawai'i's economy is expected to remain strong, higher inflation rates will likely continue, Bonham said. Estimates for inflation in 2005 in Honolulu are as high as 2.9 percent. Before spiking to a nine-year high of 2.3 percent last year, the annual increase in the Honolulu Consumer Price Index had hovered around 1.5 percent or lower for much of the last decade.

"That just reflected how bad the economy was," Bonham said. "Believe it or not we've got next year looking stronger than this year.

"When you have inflation surprises, which I think you can classify the later half of last year, and what's coming down the pike, your real-wage does go down for a period of time."

However, the recent bump in the cost of living shouldn't derail the state's current economic expansion, said Leroy Laney, an economics and finance professor at Hawaii Pacific University.

"It's not up at range that it would be a problem," he said. "It's good inflation. The economy is growing (and) it's a broad-based growth."