The cost of food, gasoline and education in Honolulu rose moderately during the second half of 2012, but overall inflation remained relatively muted, according to a government report.
Inflation as measured by the Consumer Price Index rose 2 percent in Honolulu during the final six months of last year compared with the same period a year earlier, the U.S. Department of Labor reported recently. That was down from a 2.8 percent increase in the index during the first half of 2012 from a year earlier.
Among the major components in the index, the biggest increase was in the cost of food and beverages, which rose 4.2 percent. Gasoline prices were up 3.7 percent, and the cost of education rose 3.5 percent.
The only major category to decline was transportation, which fell by 0.3 percent. Although the price of gas pushed up transportation costs, the increase was more than offset by price declines in other category components, such as new vehicles, airline fares and car insurance.
Electricity costs, which are accounted for in the housing category, were unchanged. Hawaii electricity costs, which rose sharply to record highs in 2010, leveled off by the second half of 2011.
"We haven’t seen that much in the way of price pressure in the economy lately," said Leroy Laney, professor of finance and economics at Hawaii Pacific University. "We’re still not in a boom, and I wouldn’t expect higher inflation unless there is a surge in energy prices."
The state Department of Business, Economic Development and Tourism is projecting inflation to remain subdued for the next several years, reflecting the slow economic recovery. Inflation is typically stronger during times of rapid economic growth. Honolulu CPI peaked at 5.9 percent in 2006 during the last economic boom.
Low inflation nationally has allowed the Federal Reserve to keep interest rates low in an effort to stimulate economic growth, Laney said. That has helped bring down mortgage rates to make homes more affordable. It has also allowed consumers to pay off debts or refinance at lower rates.
"The fact that the Fed is not seeing any inflationary pressure means they can continue with an easy monetary policy," said Laney who worked as an economist at the Federal Reserve for 10 years under the chairmanships of Paul Volcker and Alan Greenspan.
Volcker is credited with ending the high levels of inflation that ravaged the U.S. economy during the 1970s. He and other members of the Fed’s Open Market Committee jacked up the central bank’s benchmark federal funds rate to 18 percent in an attempt to rein in runaway inflation, Laney said. The rate is now in a target range of 0 to 0.25 percent.
"We were on an entirely different planet than the one we’re on now," Laney said.
