Inflation in Honolulu remained muted during the second half of last year, helping underpin a steady recovery in the local economy, government officials said Thursday.

Prices for a range of consumer goods and services rose 1.7 percent from July through December when compared with the same period a year earlier, according to a report from the U.S. Bureau of Labor statistics. That was the smallest year-over-year increase in Honolulu’s Consumer Price Index since the second half of 2011, the BLS reported.

"A rate of 1.7 percent is considered to be a low inflation rate," said Eugene Tian, the state’s chief economist. "This is especially true during an economic expansion when you would expect higher inflation rates."

Low, stable inflation is good for the economy because it boosts the purchasing power of consumers, Tian said. "People feel that their money is worth more," so they spend more, he said.

Honolulu’s inflation for the six-month period matched the national rate of 1.7 percent for the same period, according to Todd Johnson, a BLS economist based in San Francisco. However, there were several categories in which the local price increases were higher than the national average, he said.

Among the major components of the Honolulu CPI, the biggest increase was in the cost of medical care, which rose 3.6 percent. Nationally, the increase was 2.1 percent.

Food and beverage costs rose 2.9 percent in Honolulu, compared with 1.1 percent nationally. A 2.4 percent increase in Honolulu recreation costs outpaced a 0.4 percent gain nationally. Gas prices were a different story, however, falling 2.1 percent in Hawaii, while rising 0.1 percent nationally, according to Johnson.

Honolulu’s electricity prices, which are tied to the price of oil, fell 0.2 percent. Despite the decline, households in Honolulu and throughout the state still pay the highest electricity rates in the nation. Hawaii residents paid an average of 37.2 cents a kilowatt-hour for electricity in November compared with the national average of 12.1 cents a kilowatt-hour, according to the latest data available from the U.S. Energy Information Administration.

Tian said he was surprised the shelter component of Honolulu’s index rose only 1.6 percent given recent housing price increases reported by the Honolulu Board of Realtors.

"It’s likely that the index is lagging," Tian said. "These increases will probably show up in the next CPI report."

Honolulu’s inflation rate is expected to increase slowly over the next few years, according to the state Department of Business, Economic Development and Tourism. DBEDT’s forecast calls for the rate to climb to 2.1 percent in 2014, to 2.5 percent in 2015 and to 3 percent in 2016. However, those rates would still be well below the recent peak of 5.9 percent in 2006 during the economic boom that preceeded the most recent recession.

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