Honolulu inflation lags national rate

A dramatic decrease in apparel prices kept Honolulu inflation tame and helped drop the consumer price index below the U.S. rate for the first time in 11 years.

Inflation rose 1.1 percent during the first half of 2014 compared with the year-earlier period, according to a report released Tuesday by the U.S. Bureau of Labor Statistics. The U.S. inflation rate was 1.7 percent during the same period.

Honolulu inflation inched up just 0.5 percent from the second half of 2013.

"Hawaii inflation was higher than the U.S. for all these years until now," said Eugene Tian, chief economist for the state Department of Business, Economic Development and Tourism. "Inflation goes in cycles and now I think it will be lower than the U.S. for a while — maybe for 10 years."

"Low inflation is good for consumers because consumers will pay less and it also means that the real (inflation-adjusted) income for households is higher," Tian added.

Tian called apparel "the main driver" for the low inflation after the sector dropped 5.9 percent from the year-earlier period.

Hawaii, which has the highest electricity costs in the nation, saw prices in that sector rise 2.8 percent during the first six months of 2014 over the year-ago period. Education and communication increased 2.7 percent, recreation rose 2.5 percent and transportation was up 2.1 percent.

At the other end of the spectrum, shelter was up just 0.6 percent and gas prices decreased 2 percent.

"Low inflation is good for consumers but sometimes inflation is related to economic growth," Tian said. "Inflation always goes with economic growth but at this time we don’t see that correlation yet because the economy is still doing good in the state."

As for the drop in clothing prices, Tian said, "It’s been declining for a year and a half."

In 2013, apparel pricing was down 2.3 percent in the first half of the year from the year-earlier period and off 1.7 percent in the second half of the year from the corresponding period a year earlier.

"From a national standpoint, I think retail apparel is a very competitive market," said Sheri Sakamoto, president of Retail Merchants of Hawaii. "So it’s possible what our national stores are doing is trying to meet the needs of their consumers.

"When you talk about our local stores here, the driving force of small business, the small retailers have not decreased their prices. If anything, they’ve kept their prices the same."

DBEDT forecast in May that inflation for the state would be up 2.1 percent this year. Tian said the state has revised that projection lower and later this week will issue a new forecast calling for inflation to rise just 1.5 percent in 2014, which means it will rise at a slightly higher year-over-year pace than it did in the first half of this year.

Honolulu’s inflation rate, which Tian uses interchangeably as the state number, was the lowest Honolulu inflation rate for a half-year since 2003 except the recession year of 2009 when it was 0.5 percent for the year.

ENLARGE PHOTO.