Honolulu inflation slows


POSTED: Friday, February 20, 2009

Honolulu residents and visitors were still paying more for goods and services during the second half of 2008, but the rate of Oahu's consumer price growth slowed to narrow the gap between Honolulu's rate of inflation and the average for other U.S. cities last year.;

In the latest semi-annual consumer price index report issued today by the U.S. Bureau of Labor Statistics, Honolulu inflation increased 3.6 percent over the second half of 2007, with prices rising just 1.3 percent during the final six months of 2008 over the first half of the year.

For the entire calendar year, prices rose 4.3 percent. During the first six months of 2008, consumer prices had risen 4.9 percent over the year-earlier period.

Inflationary growth has contracted along with Hawaii's economy; however, for the time measured, Hawaii residents and visitors still paid more for housing and utilities. It also cost more to buy groceries or dine out, and to get around the island. However, if they wanted to console themselves with a soothing alcoholic beverage or indulge in some retail clothing therapy, that was cheaper in the second half of the year than in the first half.

Housing costs rose 3.1 percent in the second half of 2008 over the same period in 2007 but were up just 1.6 percent from the first half of 2008.

Transportation prices increased 3.3 percent in the second half but fell 1.4 percent from the first half of 2008. More specifically, gas prices jumped 11.9 percent in the second half of 2008 over a year ago but decreased 2.8 percent from the first half of 2008.

Food costs rose 7.1 percent in the second half of the year over the same time a year ago and were up 4.3 percent from the first half of 2008.

The rise in inflation essentially meant that Honolulu consumers paid $230.39 during the second half of this year for a basket of goods that would have cost them $100 from 1982-84.

 ”;Lower inflation is good for consumers, however there is a trade-off between inflation and unemployment,”; said Eugene Tian, research and statistics officer for the Hawaii Department of Business, Economic Development & Tourism. “;When the inflation rate is lower, there is generally a higher unemployment rate, and generally lower economic growth.”;

 Inflation has come down as Hawaii's unemployment rate has grown and its economy slowed, and is expected to come down significantly more during the next calendar year, said Byron Gangnes, an associate professor of economics and the director of the University of Hawaii's Economic Research Organization's Hawaii Economy Group.

“;Honolulu's inflation is going to decline very rapidly in the next calendar year,”; Gangnes said. “;We are expecting to see a very low rate of inflation for the coming year in the 1 to 2 percent range or lower.”;

Since 2004, Honolulu inflation has been higher than the U.S. city average, Tian said. During the second half of 2008, Honolulu's consumer inflation rate of

3.6 percent was similar to the United State's city average of

3.4 percent, he said. 

For all of 2008, Honolulu's inflation rate of 4.3 percent is still higher than the U.S. city average of 3.8 percent, but the gap is getting smaller, Tian said.

The gap has narrowed as Honolulu's housing costs have aligned with the national costs, Gangnes said.

“;During the period of 2004 to 2006, our housing costs were accelerating faster than the national average,”; he said. “;Housing inflation has almost ceased because of the peaking of housing prices and the beginning of a decline. We expect to see pretty significant declines in home prices this year and, as a result, pressure for landlords to lower the rent.”;

The slowdown in tourism may have contributed to the decline in inflation, said David Kong, BLS statistician.

“;In the last few months, we've seen employment numbers coming down in the leisure and hospitality industry in Hawaii,”; Kong said. “;The slowdown in the economy might have led to a slowdown in tourism, and as a result there might be less upward pressure on prices.”;