Hawai'i's high cost of living is set to rise as a host of taxes and rate increases takes effect with the ringing in of the new year.

O'ahu shoppers will notice it at the cash register with a general excise tax surcharge of 0.5 percentage points being added to their bills.

At service stations, there will be an about 11-cent increase as a state tax break expires. On the docks, it will cost more to bring in a Mainland container and handle it, while monthly Medicare costs will climb.

Those are just some of the increases scheduled as government raises money for a rail system and businesses increase rates to fund improvements or cover other costs. On the flip side, the state is increasing the standard deduction for income taxes and adjusting tax brackets. Gov. Linda Lingle also wants to use $300 million of the state budget surplus for other tax relief. But for now, many people will see an increase in their expenses that could outstrip wage gains.

"They're hammering us," said retiree John Stringfellow, 72. "The cost of living is accelerating at a higher rate here than it is on the Mainland."

The tax increases are just some of the costs that are going up for O'ahu residents, though. Hawaiian Electric Co. has proposed a 7.2 percent increase in rates, while interisland barge service Young Brothers Ltd. wants to hike its rates. Later this year, tuition will rise for University of Hawai'i students, while public school lunches will jump by 25 percent.

The Hawaii Medical Service Association most likely will seek a rate increase for its small business groups after starting the year with a 4.4 percent increase for large employers.

The general excise tax surcharge has generated the most discussion and is the biggest state tax hike since 1965, said Lowell Kalapa, head of the Tax Foundation of Hawai'i. Kalapa said the surcharge, which raises the general excise tax to 4.5 percent from 4.0 percent, will be felt indirectly and directly by residents.

The direct impact will be seen on cash register receipts where the higher tax is shown. The indirect rise will occur as businesses raise prices to recoup increased taxes on their own purchases, he said. Hawaiian Electric will pay the surcharge on fuel for its generators and pass the cost along in prices it charges to customers, Kalapa said.

"What they don't realize is it's not only the tax, but it's the shelf price that will go up next year," Kalapa said. He's calculated the surcharge will cost a family of four making $80,000 to $90,000 a year about $450 annually.

There are proposals to mitigate some of the higher levies, such as one by Honolulu Mayor Mufi Hannemann to give homeowner-occupants a tax break. Gov. Linda Lingle has a proposal to extend a general excise tax exemption on gasoline blended with ethanol. Some opponents of Hannemann's idea say it could result in higher rates for landlords who would pass the increase on to renters.

Stringfellow, a Makiki resident, said he could absorb the increases but worried about people who were less fortunate than himself. Increases in the cost of living make it more difficult for people to live here, including some of his own family, he said. "I'm not happy that two out of my three children left the Islands because of economic factors."

All of the increases figure to add into inflation in Honolulu, which had the biggest gain in the country during the first half of 2006.

Paul Brewbaker, Bank of Hawaii chief economist, said he is projecting inflation will rise 4.6 percent in 2007, or unchanged from his full-year estimate for this year.

From that perspective, people are already familiar with the changes in spending they'll face in 2007. In some instances the higher costs may not be big enough to be noticed by some people. Matson's rate hike, for example, would add about 10.6 cents to a bag of rice or a penny to a head of lettuce, the company has said.

"Much of this has already been going on," Brewbaker said. He noted some of the increases will result in improved service or better systems that will benefit consumers ultimately. Young Brothers, for example, is proposing to hike rates by an overall average of 10.7 percent as it makes investments in its computer systems and replaces aging barges with newer equipment.

Brewbaker's forecast calls for inflation to begin receding after 2007 as increases in oil prices and material prices of the last few years stabilize. In the meantime, pay increases, such as a 50-cent increase in Hawai'i's minimum wage, will help offset some of the rising costs here.

Reach Greg Wiles at gwiles@honoluluadvertiser.com.