Hawai'i drivers will likely see another spike in gas prices next week as the state is set to raise its cap on wholesale prices by about 50 cents on Monday. That means the price at the pump could reach as high as $3.70 a gallon.

Even though crude oil prices fell yesterday to pre-Katrina levels and gasoline prices on the Mainland appeared to have peaked, Hawai'i prices could continue to climb for at least another 13 days. That's because there is a time lag built into the state's new gasoline price cap.

Hawai'i began setting limits on wholesale gasoline prices on Sept. 1, becoming the only state in the nation to do so. However, prices have continued to climb because the caps are based on Mainland prices which are up in response to Katrina.

The Public Utilities Commission will announce today the official price cap for next week. Based on Advertiser calculations, the wholesale price cap for regular on O'ahu next week will be about $3.56 including taxes. The retail price is typically about 12 cents higher, meaning a gallon of unleaded regular gas could hit $3.70 a gallon.

That kind of jump in prices would start cutting into consumer spending on dining out, taking trips and shopping.

"As gasoline prices keep rising, there are things you have to cut out," said Bank of Hawaii economist Paul Brewbaker.

STURDY ECONOMY

A year ago, the price for regular gasoline in Honolulu was about 68 cents a gallon less than it was yesterday.

Still Hawai'i's recent economic boom is likely to survive the high gasoline prices.

"The economy can survive just fine at $3 or $3.50 a gallon" for gasoline, said Carl Bonham, an economist at the University of Hawai'i-Manoa. "We should be thankful that the economy is as strong as it is now. That will help to deal with this."

That doesn't mean it's going to be easy. Higher costs will hurt some families more than others.

"There are people whose budget is so tight, it's causing a lot of pain," Bonham said. "The high prices for gas, oil, energy and higher rents will filter through the economy, and we'll have generalized inflation."

Electric rates are climbing because of higher fuel costs and yesterday the state's two main shipping companies said they will increase their fuel surcharge.

Strong tourism, real estate, construction and military spending should keep Hawai'i's economy humming despite the rise in gasoline and fuel costs.

"It's far from a disaster, but it's still cutting into household expenditures," said Brewbaker.

YESTERDAY'S PRICES

Gasoline prices statewide continued to rise yesterday with prices for regular in Honolulu surging past $3 a gallon to as much as nearly $3.18 a gallon in some locations. Last week O'ahu prices ranged from about $2.50 to $2.95 a gallon for regular.

The jump in pump prices this week came as the price control law allowed oil companies this week to charge as much as $3.04 a gallon on O'ahu for wholesale regular, up from $2.76 a gallon last week.

The caps don't require wholesalers to price at the maximum allowed, but oil industry analysts said it is likely they will to offset times when they are forced to lower prices.

Brewbaker said wholesalers may not price to the maximum next week, when the legal limit jumps by about 50 cents, because market conditions wouldn't warrant it.

The oil companies have declined to discuss their pricing policies.

There is hope for Hawai'i gasoline prices later in the month. The drop in Mainland prices this week could eventually drive down local prices. The PUC will set a new price cap on Sept. 19 that likely will reflect the lower Mainland prices and bring some relief.

While $3 a gallon gasoline on O'ahu is a new development, Neighbor Island residents have been paying more than $3 at the pump for months or, in the case of Lana'i, for more than a year, and may hit $4 a gallon next week.

"You don't really have an alternative (to driving) if you have to go to work," said Ron Gingerich, a fine arts photographer who twice a week drives from Lana'i City to Manele Bay.

HOW THE LAW WORKS

The price cap is set once a week based on wholesale prices in Los Angeles, the Gulf Coast and New York. The wholesale cap is an average of those prices plus a margin to account for the costs of shipping, distributing and marketing gasoline in Hawai'i.

The cap is adjusted each Monday based on prices from the previous two weeks.

Gov. Linda Lingle has the power to suspend the price cap, but has said she would only do so if the law has an adverse impact on the economy, public health, or the welfare and safety of the state.

Reach Sean Hao at shao@honoluluadvertiser.com.