Inflation weighs on Hawaii's economic growth

The outlook for real personal income growth this year is lowered to 2.1%

By Nina Wu
nwu@starbulletin.com

Robust employment and job growth in Hawaii are expected to result in higher personal incomes this year, but that news is tempered by higher rates of inflation.

In the state Department of Business, Economic Development and Tourism's latest quarterly forecast, the real personal income and gross state product growth rates were revised to 2.1 percent and 2.7 percent, respectively.

Those two figures are lower than DBEDT's May forecast, and lower than growth recorded in the previous two years.

Blame it on higher oil and home prices.

"The inflation rate was significantly higher than anticipated, so we upped our estimate of the Consumer Price Index for the year," said state economist Pearl Imada Iboshi. "That primarily was the difference in the real personal income."

Hawaii's projected inflation rate for 2006 was revised up to 4.8 percent from the 3.8 percent predicted in May's forecast to reflect higher oil prices -- which boost the costs of goods throughout the economy -- as well as increases in housing costs.

But Iboshi said the state expects inflation rates to slow down for the rest of the year.

"We really think that this was the peak, and that it will moderate," she said.

In 2007, the rate of inflation is expected to be at 3.8 percent, half a percentage higher than in the May forecast.

Overall, the state's third Quarterly Statistical & Economic Report painted a positive picture for Hawaii. Construction activity is up, along with the total number of jobs and visitors.

All counties showed signs of positive job growth in the second quarter of this year when compared to the same time last year. Honolulu recorded the highest growth, at 2.8 percent, and Maui the lowest growth.

Hawaii's unemployment rate has averaged 2.7 percent so far this year.

Total visitor arrivals increased in the second quarter of this year on the neighbor islands. Oahu was the only island to show a decline of total visitor arrivals, due mostly to fewer international arrivals.

Hotel occupancy rates were down in Honolulu and Kauai counties, but up in Hawaii and Maui counties.

Construction will continue to remain strong, with growth expected for the rest of this year and well into next year.

The statewide total value of private building permits increased by 17.2 percent to nearly $1.7 billion so far this year on top of $3.5 billion worth of permits issued in all of 2005.

But growth in construction is expected to level off in the next few years, due to rising interest rates and a decline in demand for housing in recent months.

Job growth forecasts were revised upwards to 2.5 percent from 2.2 percent in the previous quarter's report. But this is expected to slow to 1.5 percent in 2007, and 1.2 percent in following years.



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