Rising oil prices spread beyond gas

In import-based Hawaii, rising energy prices raise the price of everything else

It's easy to see the impact of record-high crude oil prices at the gas pump.

But what about other areas of the economy?

Anywhere you turn in Hawaii, it's hard to not notice the rising cost of everything from gasoline to groceries.

"You see it at the gas pump, and that's the wake-up call, but it also shows up in the processing costs for food and other manufactured items that are produced elsewhere, but that we then import," said Paul Brewbaker, chief economist for Bank of Hawaii.

Some increases are easily seen, such as fuel surcharges on airfares or shipping rates.

Other costs are less measurable, such as how meat prices are driven up due to higher feed prices as a result of ethanol demand, Brewbaker says.

"The inflation has been much higher than we thought in a particular commodity, petroleum, on which Hawaii is very much more dependent than the rest of the U.S. energy consumption complex," Brewbaker added. "That vulnerability weighs increasingly heavy on prospects for economic growth in the islands."

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Preparing a St. Patrick's Day party?

A spread featuring four pounds of corned beef brisket, an equal amount of cabbage and ahi poke, rice and -- for good measure -- two pounds of short ribs, will cost about $48.85. That same meal was $3.48 cheaper last year.

Or maybe you're planning a trip to Las Vegas for Easter.

The average price among five airlines for a round-trip ticket to the "Ninth Hawaiian Island" is $504, compared with $445 a year ago.

And suppose you're moving and have to ship your car to the mainland. That will cost you $1,055, compared with $975 at this time last year.

Anywhere you turn in Hawaii, it's hard to not notice the rising cost of everything from gasoline to groceries.

The common denominator: Crude oil.

More specifically, record-high crude oil costs that continue to drive up inflation in the islands and across the country with each step into newer, higher territory.

Crude oil futures have gained more than $8 this month, settling at $110.21 a barrel Friday, 12 cents below the record set a day earlier.

"What's happened in the last 12 months is that oil prices, which we thought might be about $70, ended up at the end of last year more like $90 and now, two to three months into the new year, are at $110 a barrel already," said Paul Brewbaker, chief economist for Bank of Hawaii.

"The inflation has been much higher than we thought in a particular commodity, petroleum, on which Hawaii is very much more dependent than the rest of the U.S. energy consumption complex."

It's easy to see the impact of high oil prices at the gas pump, where island motorists are paying $3.61 a gallon these days, compared with $2.92 a year ago, according to AAA's Fuel Gauge report.

But in a state so reliant on fossil fuels -- elected officials repeatedly state how more than 90 percent of the state's energy needs are fueled by imported crude -- the impact of record-high national prices reaches well beyond the gas station.

"You see it at the gas pump, and that's the wake-up call," said Brewbaker, "but it also shows up in the processing costs for food and other manufactured items that are produced elsewhere, but that we then import."

Most homeowners feel the impact of higher crude oil costs in the form of higher electric bills.

For one Manoa family, the cost to power a three-bedroom, three-bathroom house was $217.69 this month, up about 43 percent from $151.32 a year ago, at a slightly higher amount of usage.

Such increases typically result from electric utilities being able to pass 100 percent of their increased fuel costs along to consumers.

That aspect of the utilities' operations has been scrutinized recently. Lawmakers two years ago passed legislation requiring the Public Utilities Commission to study and determine whether an energy-cost adjustment clause should be enacted to regulate how much of an electric companies' fuel costs can be passed on to consumers.

The PUC continues to study the matter and has not yet made a recommendation.

Airlines and shipping companies, key components of island life, also are able to pass a portion of their fuel costs onto consumers.

Hawaiian and Aloha airlines recently announced plans to increase round-trip airfares between Hawaii and the mainland by $30 to offset escalating fuel costs. Mainland-based airlines have made similar moves, raising round-trip prices for most domestic markets by as much as $50 due to the soaring price of jet fuel.

Hawaiian said every penny increase in the price of a gallon of jet fuel costs the company $1.3 million annually, adding that the average price per gallon has risen 41 cents, or 15.1 percent, since the beginning of the year.

The islands' two major shippers, Matson Navigation Co. and Horizon Lines, have had to increase rates, as well. Both recently announced increases of 2.25 percentage points to their fuel surcharge, placing it at a record high 33.75 percent.

Cost increases such as these are the measurable impacts that can be attributed to the high cost of oil. It is sometimes harder to see the secondary effects.

"Another example," says Brewbaker, "is that the increase in the price for oil increases the demand for ethanol, which raises grain prices, which makes feed more expensive, which means meat prices are more expensive.

"So meat's more expensive because petroleum's more expensive? Weird, but that's partly how that chain works."

The question many are asking now is: How long can this surge in oil prices continue?

High fuel prices are sure to cut demand at some point, analysts say. Demand for gasoline has fallen nationwide every week since late January. Analysts say gas and diesel prices will eventually fall, but the decline may come only after high prices have pushed the economy into a severe slowdown.

"This is a bubble, and everyone is waiting for it to pop," said Phil Flynn, an analyst at Alaron Trading Corp., in Chicago.

Another analyst says to get used to it.

Matthew Simmons, a Houston-based investment banker, industry analyst and former energy adviser to President Bush's 2000 campaign, argues that dwindling supplies of oil, the aging of refineries and the lack of new ones being built are unlikely to keep costs down in the face of future demand.

"I think basically we need to get used to the fact that the days of cheap oil ended," Simmons said in a telephone interview. "I think we're basically in for some very dramatically different energy costs."