Consumer prices in Honolulu rose 2.5% last year, driven by higher energy costs
Consumer prices in Honolulu rose last year at the fastest pace since 2011, driven by sharp increases in the cost of gasoline and electricity.
The 2.5 percent rise in inflation was only slightly higher, though, than Honolulu’s 20-year historical average of 2.3 percent and was in line with state economists’ forecasts.
“This is about an average number,” Eugene Tian, chief economist for the state Department of Business, Economic Development and Tourism, said Friday after the data were released by the U.S. Bureau of Labor Statistics. “When the economy grows faster, inflation grows faster. The increase in inflation was really caused by oil prices. Energy itself increased by 7.7 percent, and gasoline increased by double digits. This year we expect a similar inflation rate.”
Hawaii has long been among the leaders for the highest energy costs in the nation. The state’s average price of electricity of
29.29 cents per kilowatthour is the highest in the nation and more than double the U.S. average of 12.84. And the cost for regular gasoline in Hawaii at $3.30 a gallon also ranks first in the nation and is 78 cents higher than the national average of $2.52.
The consumer price index — the most widely used measure of inflation — matched the 2.5 percent projection for 2017 by DBEDT and was less than the 2.7 percent rate forecast by the University of Hawaii Economic Research Organization. For 2018, DBEDT is forecasting an inflation rate of 2.3 percent, and UHERO is predicting 3.1 percent.
Tian expects there to be little effect on customers’ purchasing power with the rising inflation because personal income growth through the first three quarters of 2017 — the most recent data available — was 2.6 percent. With inflation at 2.5 percent, that meant inflation-adjusted income growth was minuscule at just 0.1 percent.
Ira Gordon, owner and principal broker of Honolulu real estate company Aloha Homes, said he’s noticed gas prices going up but that he hasn’t changed his lifestyle because of higher energy prices.
“I conserve the normal stuff; I don’t leave the lights on,” he said. “But I don’t do anything out of the ordinary.”
High energy prices have kept Honolulu’s inflation rate above the U.S. average every year since 2004 except for 2014, when Honolulu’s inflation rate was
1.4 percent and the U.S. rate was 1.6 percent. In
2017 the U.S. inflation rate was 2.1 percent, four-tenths of a percentage point below the Honolulu rate. The last time Honolulu’s inflation rate climbed above 2.5 percent was 2011, when it was 3.7 percent. Over the last 20 years, the peak for Honolulu inflation was 5.9 percent in 2006 — the year before the recession.
Gas prices rose 10 percent in the second half of 2017 from the same period a year ago while electricity prices increased 5.9 percent. That left the overall energy category up 7.7 percent. Shelter, which covers the cost of rent and owners’ equivalent of rent, gained 4.1 percent. Shelter comprises about one-third of the index.
Other increases were seen in food and beverages (2.9 percent), transportation (2.8 percent), medical care (2 percent), alcoholic beverages (1.5 percent), apparel (1.5 percent) and recreation (0.5 percent). The education and communication category fell
Tian, whose agency will release its next economic forecast Feb. 8, expects federal tax cuts that take effect this year could boost inflation because consumers will have more disposable income. But he said inflation could be partially offset by a slowing in the increase of gas prices.
“The federal tax cuts will have upward pressure on inflation and will be reflected in 2018,” he said.
Source: U.S. Bureau of Labor Statistics