Hawaii’s economy is expected to grow faster this year than previously forecast after inflation remained mild during the first six months of 2014.

The state revised upward its growth forecast on Wednesday and projects Hawaii’s inflation-adjusted gross domestic product, the broadest measure of economic output, to rise 2.6 percent this year, up from 2.4 percent in its May forecast, according to a quarterly report released by the state Department of Business, Economic Development and Tourism.

Honolulu inflation for the first six months of 2014 was up 1.1 percent over the year-earlier period and the state now expects inflation to be up 1.5 percent this year, which is lower than the 2.1 percent projected in its earlier forecast.

Hawaii’s real (inflation-adjusted) personal income growth also was revised upward. The state now expects it to rise 2.6 percent, up from 2.1 percent in its May forecast.

The state said it expects the inflation rate to remain low for the next few years and rise 2.2 percent in 2015, 2.7 percent in 2016 and 3.2 percent in 2017.

"Hawaii’s inflation rate (during the first half of this year) was lower than the U.S. average for the first time since 2003," DBEDT Director Richard Lim said. "At the same time, our labor market continues to improve. We are seeing a record-high labor force and workers employed during the first seven months of the year."

Nonagricultural payroll jobs increased by nearly 7,000 through the first seven months of this year compared with the year-earlier period while the unemployment rate for the first seven months averaged 4.5 percent. DBEDT predicts the unemployment rate will drop to 4.4 percent for 2014, 4.1 percent in 2015 and 3.8 percent in 2016.

Visitors arrivals and spending are still forecast to hit a record for the third year in a row. The state said although visitor arrivals were down 0.5 percent during the first half of this year, a 5 percent increase in air seats during the second half of the year should result in 8.2 million visitors, up 0.7 percent from 2013, and $14.9 billion in spending, up 2.6 percent from last year.

Construction, the sector that many local economists expect to pick up as tourism growth wanes, saw a net loss of 100 jobs during the first seven months of the year. However, total private building permits increased 7 percent during the same period.

"That indicates there will be more construction activity in the near future," DBEDT chief economist Eugene Tian said. "Construction will help the economy because, although tourism growth will be a record this year, the pace of that growth is slower."

Tian said the decrease of 100 construction jobs likely was due to a decline in building permits during the third quarter last year.

"It takes about a half-year to start construction," he said.