PHOTOS BY CRAIG T. KOJIMA / CKOJIMA@STARBULLETIN.COM The price of gasoline, which has been on the decline for most of the year, helped to offset increases in food, clothing and housing costs to keep down inflation in Honolulu. Overall consumer prices have increased 1.1 percent this year, according to the Bureau of Labor Statistics.of Labor Statistics.

Paying the price

Everything costs more in Hawaii,
but inflation stays in check

Consumers save at grocery store

Clothing stores don't see hikes

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By Russ Lynch
rlynch@starbulletin.com

Though the cost of living in Hawaii tops most of the country, those prices over the past 20 years have tended to increase at approximately the same rate, according to federal statistics.

For this year, big price changes jump out and attract the attention of consumers, such as a 16.2 percent drop in Honolulu gasoline prices since the first half of 2001 and a 6.5 percent rise in Honolulu apparel prices over the same period. Over the past 12 months, national gasoline prices went down 3.7 percent but apparel went in the opposite direction from Honolulu, declining 3.2 percent.

But those are small parts of the federally assembled consumer price index and many items, such as housing -- which is about 40 percent of the sample -- and food are up only slightly in Honolulu, figures from the federal Bureau of Labor Statistics show.

While Honolulu prices rise and fall year-to-year at their own pace, over the long-term they track mainland changes, said Paul Brewbaker, Bank of Hawaii senior vice president and chief economist.

The latest Honolulu consumer price index came out at 180.1, identical to the national figure for July. The base for the calculation is an average of $100 for a specific collection of goods and services purchased in the 1982-84 period.

That batch rose to exactly $180.10 since then, both in Honolulu and nationally.

Brewbaker said the retailing sector provides one example of how changes in Hawaii and on the mainland can affect each other.

"When it was really expensive here the Costco, Wal-Mart, Kmart business came on down from the mainland and exploited the possibilities of delivering merchandise more efficiently at a lower price point," he said.

That brought retail prices back in line, he said.

Then inflation on the mainland pushed housing prices up and some mainlanders saw opportunities to invest in Hawaii.

For people living in high-cost areas, such as San Francisco, Brewbaker said, the thinking went like this: "I can buy a home in Hawaii cheaper than here and the cost of living is not so far out of alignment."

"The math is even more compelling in the neighbor island markets," he said.

Shifts like that help keep Hawaii prices in line with the mainland and, despite differences of several percentage points from time to time, the figures over a half century show a difference of only about one-tenth of a percentage point between the national and Hawaii averages, he said.

Leroy Laney, a professor of economics at Hawaii Pacific University, said the national inflation rate has been flat recently.

"The Hawaii inflation rate does follow the national pretty closely," Laney said. "About 40 percent of the index is shelter and housing prices have been flat."

The index A typical consumer's mix of goods and services that cost $100 in 1982-84 keeps rising. Year U.S. Honolulu 1999 $166.70 $172.70 2000 $172.80 $173.80 2001 $177.50 $175.90 2002 $180.10 $180.10 Source: Bureau of Labor Statistics

Although Oahu housing prices have gone up in the past several months, lower interest rates have kept mortgage payments down, keeping the overall housing portion of the consumer budget relatively unchanged.

Laney has a theory about why prices have held steady. "To a greater extent than we believed or understood," he said, the baby boom generation affected prices.

Those born after World War II matured, got married and started buying their own houses, and the furniture, cars and other things that go along with them, driving up prices.

By the late 1980s, that was in full swing but it tailed off when that generation got settled, Laney said.

These last few years, there just wasn't that much movement and the underlying inflationary psychology drifted away, he said.

It is likely to happen all over again in the latter part of this decade as the boomers' own offspring create their own demand for housing, he said.

In any case, home prices have been going up and are likely to keep increasing for the rest of this year, probably pushing up the next consumer price index, the economists say.

A look at the Honolulu CPI over the past six years shows an average annual increase of 0.91 percent. In other words, it has stayed flat.

Even the cost of food and beverages, which was up 2.4 percent in the first half of this year compared with the first half of 2001, rose an average of only 1.6 percent over the past six years.

The biggest price swings lately have been in gasoline, which has a history of volatility. Gas prices were up 10.7 percent in 2000 and up another 12.7 percent last year.

However, they dropped 16 percent this year and had been lower than the year before in 1998 and 1999.

Despite those big swings, however, the average over the past six years was a price increase of 1.3 percent.

With consumer prices increases staying low, those negotiating labor contracts this year might want to keep the lack of inflation in mind, Bank of Hawaii's Brewbaker said, suggesting that it is harder to justify a pay increase when the cost of living isn't rising.

"Where there's so much data, we do try to bring it out," said attorney Robert Katz said, who represents hotel management in labor negotiations. "The inflation rate is certainly significant."

But there are other factors to take into account, such as changing occupancy rates and the growth of the neighbor islands, some of which is at Oahu's expense, Katz said.

A union representative at Local 5 of the Hotel Employees and Restaurant Employees said job security and a number of other issues are more important than wages this year.

His union, however, is asking for a $2 wage increase for non-tipped workers and another 89 cents an hour for tipped workers, in increments over the next three years.

The hotels have offered tip-category workers $1.05 an hour more and tipped workers 30 cents.