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The Honolulu Advertiser
Posted on: Thursday, August 17, 2006

O'ahu inflation rate highest in 15 years

By Sean Hao
Advertiser Staff Writer

If it seems you're getting less for your money these days, you're right.

Prices are going up in Honolulu at the fastest pace in 15 years.

That's the word from the U.S. Department of Labor yesterday, which released its Consumer Price Index, showing the cost of living in Honolulu climbed 5.8 percent in the first half of this year compared with the same period a year earlier.

"Property taxes, the electricity bill, the water bill they've just raised everything," said Jackie Links, 72, a military retiree in 'Ewa Beach. "We're thinking about selling one of our cars. We're having a real tough time of it."

Most of the increase came from higher housing and energy costs.

Housing costs, which represent roughly 40 percent of the average person's total spending, were 8.5 percent higher at the end of June. Gasoline prices, which represent 3 percent of spending, shot up 24.2 percent.

Higher prices are a byproduct of Hawai'i's growing economy, said Bank of Hawaii economist Paul Brewbaker. 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 5.6 percent from a year ago, according to the most recent figures from the U.S. Bureau of Economic Analysis.

"This is bad news," Brewbaker said. "We're running as fast as we can to stay in the same place."

To stretch their budget, the Links, of 'Ewa Beach, buy cheaper cuts of meat, share restaurant meals, dine out less and have put off dental work.

"It's sort of scary," Jackie Links said.

After years of relatively low inflation, it can be difficult for consumers to adjust to rising prices.

Inflation on O'ahu peaked at 8.3 percent for the first six months of 1991. Last year, inflation on O'ahu hit a 13-year high of 3.8 percent. This year, the rise likely will surpass that mark.

Local economists had predicted inflation in Honolulu for all of 2006 would range from 3.5 percent to 4.0 percent. Those figures likely will be revised upward based on yesterday's numbers. But the numbers do provide a glimmer of hope.

The Consumer Price Index was up just 2.9 percent for the first half of this year when compared with the second half of last year. That's a sign that the inflation rate is slowing and has probably peaked, said University of Hawai'i economist Carl Bonham.

He said energy and housing costs are unlikely to rise at the same high rate during the last half of this year.

"Our forecast is definitely going to go up, but we're not going to be forecasting inflation of 5 percent" for this year, Bonham said.

The Consumer Price Index for Honolulu now stands at 206.4. This means that a basket of goods that cost $100 between 1982 and 1984 cost $206.04 during the first six months of this year. The index is the basis for computing cost-of-living raises in many union contracts.

Reach Sean Hao at shao@honoluluadvertiser.com.

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