Sponsored by:

Comment, blog & share photos

Log in | Become a member
The Honolulu Advertiser
Posted on: Thursday, February 24, 2005

O'ahu's price index up 3.3%

By Sean Hao
Advertiser Staff Writer

Consumer prices in Honolulu rose 3.3 percent last year compared with 2003 as a rise in home and fuel prices drove inflation to its highest rate since 1992.

Housing costs rose 4.6 percent, while gasoline prices increased 13.8 percent, according to figures released yesterday by the U.S. Department of Labor. While relatively high, the rise in inflation was lower than most forecasts, which could ease concern that Hawai'i's economy may be overheating. Nationally, consumer prices rose 2.7 percent last year.

Higher prices are a byproduct of Hawai'i's economy, which is benefiting from robust real estate and construction and near-record tourism. That means job stability and new jobs, but an increase in the cost of living also means some residents actually may see their purchasing power remain flat or drop this year as incomes fail to keep pace.

Personal income statewide rose 6.2 percent during the third quarter of 2004 compared with the same period in 2003, putting Hawai'i in the top 10 among the 50 states, according to the Bureau of Economic Analysis.

However, when inflation and income growth from new jobs are backed out of the numbers, the typical Hawai'i worker is seeing his or her purchasing power grow less than 1 percent this year, according Byron Gangnes, a University of Hawai'i associate professor of economics.

"It's always a problem when inflation picks up because it eats into purchasing power," he said.

For those on fixed income such as retirees, the impact of inflation can be greater.

"It does affect me because I'm at the bottom of the pool, trying to struggle to get up," said Elsie Hollingsworth, 85, a retiree living in Pearl City.

Hollingsworth said that after rent and utilities, she nets just $400 a month out of $1,675 in pension and Social Security to pay for food and home nursing help. While Social Security benefits are increased each year to account for inflation, much of that gain is offset by rising Medicare premiums, making it difficult to make ends meet, Hollingsworth said.

"You take it in in one and and give it out with the other," she said. "I'm just teetering on that borderline."

Apart from housing and fuel costs, which accounted for more than three-fourths of the overall inflation increase, durable goods and food-and-beverage prices rose at more modest levels last year. Recreation and apparel costs fell.

The biggest bite from inflation continues to occur in the Honolulu's housing market where during January half of all single-family dwellings sold for more than $505,000. That was a 26.3 percent rise over the $400,000 median price a year earlier, according to the Honolulu Board of Realtors.

As for gasoline, the average price for regular on O'ahu yesterday was $2.313 a gallon, which was up more than 15 percent from a year ago, according to AAA travel club.

Local economists' predictions for inflation in Honolulu for all of 2004 ranged from 3.2 percent to 3.8 percent.

After last year's rise the Consumer Price Index for Honolulu now stands at 191.9. This means that a basket of goods that cost $100 between 1982 and 1984 cost $191.90 last year. The index is the basis for computing cost-of-living raises in many union contracts.

For 2005, many local economists expect inflation to rise above last year's level. The last time Honolulu's annual inflation rate rose above 3.3 percent was in 1992 when the island's cost of living rose 4.3 percent from the prior year.

"That was the big boom for us from the Japanese bubble," said state economist Pearl Imada Iboshi.

During the late 1980s and early 1990s. housing prices rose sharply — only to fall back as the Japanese economy faltered. That among other factors led to nearly a decade of relatively stagnant economic growth.

Economists said the current expansion should be more sustainable than the last economic boom.

"I think it's a sign of the stability of the economy overall — there's strong visitor arrival and strong residential (real estate) demand," Iboshi said. "I think we have a very healthy economy right now."

Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.

• • •