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The Honolulu Advertiser
Posted on: Saturday, February 20, 2010

Honolulu inflation rate drops to 0.7%

By Greg Wiles
Advertiser Staff Writer

Hawaii news photo - The Honolulu Advertiser
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Hawaii news photo - The Honolulu Advertiser
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Honolulu's inflation rate last year fell to its lowest level in years as the basket of goods and services measured by the Consumer Price Index rose an anemic 0.7 percent.

The figures released yesterday by the U.S. Bureau of Labor Statistics showed people got a break from the big price increases of prior years, but that the lower increase was linked to an unhealthy economy.

"There's certainly a cautionary tale in flat or declining prices," said Amar Mann, a bureau economist. "It can reduce business investment and have more insidious effects on hiring."

Honolulu's inflation rate averaged 5 percent between 2006 and 2008, as housing prices and energy costs rose. But the recession tamed the price gains during the first half of 2009.

The annual rate in Honolulu of 0.7 percent was higher than the national cities rate, which fell by 0.4 percent for 2009.

Honolulu residents paid less at the grocery store and gas pump compared with a year earlier. Transportation costs also fell, as did household energy expenses.

On the other side of the ledger, shelter or what it costs to rent homes rose by 2.2 percent and drove much of the rise in annual costs. Restaurant meals and clothing prices also rose.

The Consumer Price Index monitors changes in items that are consumed by most people, ranging from the cost of renting a home to cereal and airline flights.

"It's really on the shortlist of things we use to gauge the economy," said local economist Paul Brewbaker, of TZ Economics.

The inflation report comes every six months, with the first half of 2009 showing a 0.3 percent increase in prices compared with a year earlier.

During the second half of 2009, the gain was 1.7 percent when compared with the similar 2008 period.

Brewbaker said the low inflation during the January-to-June period corresponded with the peak of the recession, while the second half was in line with his view that a nascent recovery was unexpectedly strong.

"We're no longer in free fall, we're in a position to mount a recovery," Brewbaker said.

He said the 1.7 percent second-half gain also is close to the 2 percent set by the Federal Reserve as an inflation target.

"It's probably a healthy thing to have a little bit of inflation," Mann said.

"Price increases have certainly picked up but more than likely it's probably a sign of something positive since people have started to spend more money."

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