Isle consumer prices rose
only half a point in '97

By Russ Lynch
Star-Bulletin

Honolulu's inflation rate is lower than it has been since the federal government started measuring it in 1963, a piece of good news for consumers used to doom-and-gloom reports about the economy.

Consumer prices in Honolulu rose only half a percentage point last year, well below the previous record low of 0.9 percent in 1996, the government's Bureau of Labor Statistics said today.

The official price index could actually start falling and deflation is probably a reality for many people, local economists said.

Clothing prices are already down, for example. "A lot of that stuff is made in East Asia, said Leroy Laney, chief economist at First Hawaiian Bank. "They're going to be shipping that stuff to us at lower prices because of the devaluation of their currencies."

There is a global trend to lower inflation and it would not be surprising to see deflation here, Laney said. "We've seen the half-yearly figures decline already."

Today's report showed that overall Honolulu prices in the last half of 1997 were down 0.2 percent from the first half of the year.

Economic consultant David Ramsour, a former Bank of Hawaii chief economist, believes that in real terms Hawaii probably already is experiencing deflation.

The prices people actually pay probably were down 1 percent last year, said Ramsour, who doesn't think the federal survey accurately reflects the way people shop.

"The tone of deflation has been set for at least a year and a half," he said.

Japanese businesses and others have been selling off assets to meet debt obligations, and that has reflected on local property values.

"Totally coincidental to that, there has been a dramatic change in the wholesale and retail distribution of goods and services," Ramsour said. Shoppers have more choices, and more big discounters have entered the market.

Ramsour cited his own shopping -- he'll go to a membership-club wholesaler to buy milk for $2 a gallon cheaper than it is in the nearest supermarket.

Also, many people aren't making big purchases, out of concern about the economy, he said.

"And when people postpone a purchase or believe they can get it cheaper in a month than they can today, the retailers and wholesalers indeed have to drop their prices," Ramsour said.

But not all grocery shoppers are seeing the benefits of low inflation. Honolulu grocery prices were up 3.1 percent in the second half of 1997 compared with the same period of 1996, according to the federal study. Eating out cost more, too, an increase of 1.1 percent.

Housing costs, a bigger factor in the cost of living than food prices, were up only 0.1 percent. Residential rents were down 0.7 percent from 1996.

Transportation costs were down 1.8 percent, with gasoline prices 2.3 percent lower.

Paul Brewbaker, who succeeded Ramsour as Bank of Hawaii's chief economist, said Hawaii's cost of living really is flat or even lower because of the varying importance among the price categories.

"My impression is that food isn't getting any cheaper (but) food is maybe a quarter of the typical household budget. Housing is around 40 percent," he said.