On a day when Hawaii motorists were paying a record average of $4.527 per gallon for regular gasoline, economists voiced concern yesterday that the pain at the pump could stunt business growth.
Higher oil prices lead to higher costs for most goods and cause consumers to pull back on purchases. That could slow the recent business expansion and persuade owners to postpone hiring. The state’s unemployment rate has been stuck at 6.3 percent for four months. It could also cut into tax revenue, complicating the job of lawmakers as they deal with a $1.3 billion budget deficit over the next two years.
"When oil prices increase, it will link with the cost of doing business," said acting state Economist Eugene Tian. "There will be an upward pressure on inflation. It will be hurting the economy."
How long oil prices stay high will determine how much damage is done.
In June 2008 the price of oil peaked at $134 per barrel, retreated before the end of the year to $42 per barrel, and consumption increased the following year.
Yesterday oil traded at $112 a barrel. That level "is definitely something that changes the outlook and will be of greater concern should it prove to be more persistent than a one- or two-month pain in the gas," said Paul Brewbaker, principal of TZ Economics and chairman of the state Council on Revenues.
"These things tend to shave a fraction of a percentage point, maybe a percentage point, off an underlying real economic growth rate that could have been 2-3 percent this year," Brewbaker said.
Before the recent rise in oil prices, the state had forecast Hawaii’s economy, or real GDP (gross domestic product), would grow by 2 percent in 2011.
The jump in oil prices could cut into that growth but not take it down to zero, said Brewbaker.
"Even this oil shock — rooted in recent geopolitical turbulence — does not suffice to fully unravel the economic expansion," Brewbaker said. "Of course, the fat lady of this opera has not yet sung."
The shock in "2008 was a very short-term phenomena, so the overall impact during that year is not very significant," Tian said. "This time we actually don’t know how long it will last. It definitely will impact the economic recovery. And this is only the beginning."
While economists might be drilling deep into their charts to calculate the impact, Hawaii consumers get hit with it each time they approach the pump.
"I’m surprised every time I go," said Kaimuki resident Paulus Tsai, whose fuel costs have risen to $120 a month from $100. "They’re changing all the time and going up every time. I used to use premium in my car — that’s what the manufacturer says (to do) — but I’m using midgrade now. I know it’s just a few cents off, but just the idea kind of bothers me."
Pearl City resident Eli Lopez said he is driving a few extra miles in search of cheaper fuel.
"I’ll try to look for an Aloha gas station because if you get the (Foodland) Maika‘i Card, it’s 5 cents off per gallon," Lopez said. "I don’t buy rice because rice is expensive now. Me and (wife) Tammy carpool more often definitely because of gas prices."
The average statewide price of regular gas hit a new high of $4.527 per gallon yesterday, beating the previous record set the day before at $4.521, according to the AAA Fuel Gauge Report.
"Because gas prices are higher, we have to cut down on grocery shopping and other expenses," said Aiea resident Kelli Carvalho.
Manoa residents Duane and Sarah Preble received their new electric Leaf vehicle a week ago after a yearlong wait.
"I think it’s perfect timing," said Duane, a retired University of Hawaii art professor. "I just love driving past service stations. As the cost of gas inches up toward $5 a gallon, we will enjoy not buying any."