Isle prices
down for all
of 1998

It marks the first time in 35
years that Honolulu consumer prices
were down for an entire year

By Rob Perez
Star-Bulletin

For the first time in on record, consumer prices in Honolulu fell for an entire year, thanks largely to a still-anemic economy.

The federal government said today that Honolulu's Consumer Price Index dropped 0.5 percent during the last half of 1998, compared with the year-earlier period. That came on the heels of a 0.1 percent decrease in the first six months -- the first time a decline was recorded since the government started monitoring local prices in 1963.

Economists said the full-year deflation reflected Hawaii's slow economy and a major transformation in the underlying structure of the economy.

Housing and property values are declining, national discounters are reshaping Hawaii's retail sector and tourism is reeling. That means the pressure to cut prices in Hawaii is the strongest in many decades, economists said.

"This is extremely significant," said economic consultant David Ramsour. "I don't think we've ever had deflation in Hawaii except during the Depression."

For consumers, the deflation means Honolulu's cost of living is getting lower -- and the gap between local and mainland prices continues to shrink. For all of 1998, the U.S. inflation rate was 1.6 percent, a 12-year low.

But Pearl Imada Iboshi, the state's chief economist, said while the deflation news on one hand is good for consumers, it won't necessarily boost their confidence.

If prices are falling but incomes are staying the same, people may not feel more secure financially -- even though they are better off, she said. People would rather see their incomes rising and prices holding steady, she said.

The federal Bureau of Labor Statistics, which compiles the CPI, said Hawaii prices fell in almost all categories.

Housing, a major chunk of the index, continued its downward trend, falling 0.7 percent compared with a year earlier.

Food and beverages dropped 0.5 percent, apparel plummeted 5.9 percent, gasoline declined 3.3 percent and household furnishings fell 3.9 percent.

The few price categories that increased included alcoholic beverages, up 2.4 percent, and medical care, which jumped 4.9 percent, according to the bureau.

The deflation was even greater when compared with the first half of 1998.

The overall index on that basis fell 0.6 percent.

Because of what many economists consider shortcomings in the way the government measures price changes, Ramsour said Hawaii's deflation rate actually is greater than what either number suggests.

He pegs it at more than 1 percent.

The fact that prices are falling over a long period should be a concern because it underscores how significantly the economy is changing but no one is certain what the long-term implications will be, Ramsour said.

"I'm not sure how we should be concerned because most of us have never experienced this (deflation) in our lifetimes," he said.

Iboshi said she was surprised that the index dropped as much as it did. She was expecting the trend to flatten the last half of the year.

But the continuing fall of prices means demand for goods and services throughout the economy is lower, which isn't good on a long-term basis, she said.

With the latest drop, Honolulu prices are now at the same level they were in the last half of 1996, according to the bureau.