Honolulu prices rise the most since 1992

Local costs increased 3.8 percent in 2005 from the previous year

Oahu's hot housing market caused Honolulu's consumer price index to jump past the national average last year and could be a warning that the city's capacity to grow is hitting a wall, local economists said yesterday.

Honolulu prices rose 3.8 percent from 2004, according to a report released yesterday by the federal Bureau of Labor Statistics. The average inflation rate for all U.S. cities was 3.4 percent in 2005, while the West Region index hit 3.1 percent.

"It's the highest we've seen since 1992," said state economist Pearl Imada Iboshi, who reviewed the numbers yesterday.

Honolulu's jump in inflation, especially in the last half of 2005 -- when prices were up 4.5 percent over the last half of 2004 -- is "clearly significant," she said attributing much of the increase to higher housing and gas prices.

While growing inflation in Honolulu reflects the strength of the local economy, it is also symptomatic of strained capacity constraints, said Paul Brewbaker, Bank of Hawaii's chief economist.

The state is suffering from shortages in available housing, visitor accommodations, labor and transportation, and it's too late in the business cycle to mitigate the impacts, he said.

"We're not at the point that we need to go to the corner of King and Bishop with a sandwich board that says the need is near -- this is not different from any other business cycle that we've ever seen before. We're familiar with it, we're comfortable and used to it, but you'd think that we might have learned a little more along the way and not just gone kerplunk," Brewbaker said.

Honolulu's consumer price index for all urban consumers advanced to 197.8 in 2005. This means a market basket of goods and services that cost consumers $100 in 1982-84 would have cost them $197.80 last year.

The CPI is one of the most commonly used cost-of-living indicators because it's a measure of what a fixed "market basket" of goods and services would cost an ordinary family. The experience of families in Honolulu could be different, though, since purchasing habits often change when prices increase.

While Honolulu is the only island measured for inflation, the neighbor islands are likely experiencing even higher levels of inflation due to employment levels, housing prices and shortages, said Leroy Laney, a finance professor at Hawaii Pacific University.

Honolulu's housing prices, which rose nearly 30 percent last year, contributed most heavily to the increase in its price index, said Regional BLS Commissioner Richard J. Holden.

In Honolulu, housing costs often have been tied to the inflation rate, Imada Iboshi said. When Honolulu's real estate market was in a slump during the 1990s, the CPI was below the national average. With home and condominium price appreciation approaching 30 percent for 2005, it's no great surprise, that inflation has hit its highest level in 13 years, she said.

"We have been expecting it to jump for quite some time," Imada Iboshi said.

Honolulu's broader housing index, which includes such items as rent, fuel, utilities and household furnishings, rose 5.6 percent from a year ago. Nationwide, housing prices increased at a much slower rate of 3.3 percent.

Honolulu's housing index accelerated over 2005. From the first half of 2004 to the first half of 2005, the index increased 4 percent. Second-half prices increased 7.2 percent from the year-earlier period.

Because the jump in inflation is closely tied to housing and shelter costs, it will impact low- to middle-income renters the most, Imada Iboshi said.

"People who already live in homes won't feel as much of an impact on how they live or spend their money," she said. "But renters, who are up for contract renewals, will be paying more for their space."

Gasoline prices, which bounced back and forth because of the state's gas price cap, were 18 percent higher in 2005 than 2004. The high gas prices pushed the broader transportation index in the second half of 2005 up 5.7 percent from the year-ago period.

"We saw a big spike in gasoline prices at the end of last year and that contributed heavily to the increase," Imada Iboshi said.

Honolulu's food and beverages prices also rose more quickly than those of the nation as a whole. Food and beverage prices in Honolulu climbed 3.2 percent for 2005 from a year ago.

The recreation index was the only major industry index in Honolulu to decline over the year. Recreation prices dropped 4.4 percent in 2005 from a year earlier compared with a 0.7 percent decrease for the rest of the nation.

"Recreation prices in 2005 are lower than when the semiannual index was first initiated in 1998," the BLS said.