Inflation hits 3.5% on higher electric and gas prices

For Richard Ching of Kuliouou, a new government report showing inflation in Honolulu is on the rise due to higher fuel costs came as no surprise.

The retired accountant said he and his wife have been watching prices go up and cutting back on their spending.

"We drive into town about once a week to do our marketing," Ching said. "When we’re home, we try not to drive as much as possible and do more within the neighborhood."

Higher gasoline and electricity prices pushed Honolulu’s Consumer Price Index up 3.5 percent in the first half of the year, the U.S. Bureau of Labor Statistics reported Thursday.

Gasoline rose by 17.8 percent and electricity was up 19.5 percent. Excluding energy prices, the overall increase in the CPI was just 2.3 percent.

Many residents, including Ching, have been reducing their time behind the wheel and turning off lights to counter the higher prices.

"I’m trying to keep my electricity use as low as I can, but my bill is still going up. It’s outrageous," Ching said.

The rise in Honolulu’s CPI was mainly the result of energy costs tied to rising oil prices, said Todd Johnson, a Bureau of Labor Statistics analyst.

"Basically, energy costs were wagging the dog," Johnson said. "There are a few other things that went up faster than the overall inflation rate, but none of this is having an effect anywhere near to what energy costs are," he said.

The Consumer Price Index is a way of monitoring cost-of-living changes, and involves tracking prices of a market basket of goods and services ranging from breakfast cereal to home mortgages.

Prices this year are rising faster than last year. In 2010 Honolulu inflation stood at 2.1 percent.

Some increase in inflation should be expected when economic activity picks up following a recession, as it was in the first half of this year.

Compared with other states, Hawaii is particularly vulnerable to rising oil prices, with about 90 percent of the energy consumed in the state coming from imported fossil fuel.

Electricity prices in Honolulu have been rising fairly steadily over the past two years, hitting a record 32.8 cents a kilowatt-hour in August. The average electricity bill for an Oahu household using 600 kilowatts of electricity a month was $179 during the first six months of this year, up from $152 per month during the same period last year. The average price for a gallon of regular gasoline, meanwhile, rose to $3.95 from $3.37 during the same period.

Outside of energy-related costs, increases in other components of the CPI were much more moderate. Prices rose by 3.6 percent for education, 2.9 percent for housing, 2.6 percent for food and beverages, 2.4 percent for apparel and 0.2 percent for medical care, according to the report.

The good news is the state Department of Business, Economic Development and Tourism is predicting inflation to return to below 3 percent for the next few years. Their forecast calls for inflation of 2.5 percent for all of this year and 2.3 percent for 2012 through 2014.

Honolulu’s inflation rate has generally tracked the national trend historically. Nationwide, prices were up 3.6 percent in July from a year ago.

In the last economic expansion, Honolulu’s inflation rate was as high as 5.8 percent in 2006 before dropping to 0.5 in 2009 during the recession.