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The Honolulu Advertiser

Posted on: Wednesday, August 18, 2004

O'ahu inflation highest since '92

By Sean Hao and Mike Gordon
Advertiser Staff Writers

Consumer prices in Honolulu were 3.3 percent higher through the first six months of 2004, compared with the same period a year earlier, as soaring housing and gasoline costs drove inflation to its highest level since 1992.

Honolulu housing prices were 4.1 percent higher at the end of June and gasoline prices were up 10 percent, according to the U.S. Department of Labor's Consumer Price Index released yesterday.

"I'm retired, so everything is hitting us hard," said Barbara Mills of Punalu'u. "We always manage, but it ain't easy."

Mills and her husband, John, a retired Marine, shop and buy gasoline on base to save money.

Honolulu apparel prices rose 3.4 percent year-to-year, while grocery prices rose 4.5 percent.

"Milk, rice, gasoline — everything is really going up, and you get the same pay," said Kelly Lavin, a cafeteria worker from Waimanalo.

Lavin, who's off work taking care of a newborn child, said her family shops at Costco and has switched to a smaller truck to save money.

Bank of Hawaii economist Paul Brewbaker said the 3.3 percent increase is a fairly dramatic shift from what Honolulu has enjoyed for the past decade, when the rate of inflation was about 1 percent per year.

"Our day in the sun sort of ended a year ago," Brewbaker said. "Now, you may be looking for shade and there isn't any."

The effect of home prices was expected, but not the rise in fuel costs, he said. Home and fuel prices tend to have a persistent, corrosive effect on the consumer price index, he said.

The consumer price index "will continue to reflect the higher cost of housing for several years," Brewbaker said. "This is going to continue to drive this at comparatively high rates of inflation."

The 3.3 percent jump in consumer prices in Honolulu was larger than expected, but not surprising given recent spikes in home prices and energy costs, said Leroy Laney, an economics and finance professor at Hawaii Pacific University.

Last year, inflation on O'ahu hit a nine-year high of 2.3 percent. This year, it could surpass that mark.

Local economists' predictions for inflation in Honolulu for all of 2004 range from 2.1 percent to 3.2 percent. The Consumer Price Index was up 1.9 percent for the first half of this year when compared with the second half of last year.

Higher prices are a byproduct of Hawai'i's growing economy.

"We're seeing a very strong real economy here," Laney said. "You tend to see higher inflation when the economy picks up. That's the positive aspect of it."

The economy is providing job stability and creating new jobs. On the other hand, an increase in the cost of living means that many residents actually may see their purchasing power remain flat or fall this year as incomes fail to keep pace.

Personal income in the first three months of this year rose 1.9 percent from the preceding quarter, and 5.5 percent from a year ago, according to the most recent figures from the U.S. Bureau of Economic Analysis.

"I think personal income will go down some," Laney said.

"I don't think (the jump in inflation) is a good thing," added Pearl Imada Iboshi, the state's chief economist. "We would rather see a strong economy with less inflation."

The Consumer Price Index for Honolulu now stands at 189.2. This means that a basket of goods that cost $100 between 1982 and 1984 cost $189.20 during the first six months of this year. The index is the basis for computing cost-of-living raises in many union contracts.

Reach Mike Gordon at mgordon@honoluluadvertiser.com or 525-8012. Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.