Inflation increase in Honolulu hits 5-year high

Honolulu inflation is heating up as the state’s economy continues to grow.

The consumer price index — the most widely used measure of inflation — jumped by the largest amount since 2012 as it rose 2.5 percent during the first half of 2017 from the same period a year ago, according to data released Friday by the U.S. Bureau of Labor Statistics.

Energy prices, particularly gasoline, were the main driver behind the increase. Energy prices jumped 15.4 percent during the 12-month period, with gas costs up 20.4 percent and electricity rising 11.8 percent. Apparel prices also rose significantly at 5.8 percent.

“Inflation usually goes with economic growth,” said Eugene Tian, chief economist for the state Department of Business, Economic Development and Tourism. “When the economy grows, inflation is usually higher. But when inflation goes too high, certain groups of people will be worse off — like people on fixed income, retirees and people on government assistance — because their purchasing power will decrease. The same amount of money will not be able to buy the same amount of goods. For consumers it is better when inflation is lower.”

The 12-month rise in inflation was the highest in five years since a 2.8 percent increase during the first half of 2012 from the year-earlier period.

Hugo Valenzuela, a Spanish teacher at Kailua High School, said he and his family have responded to rising prices by cutting down their use of electricity and monitoring how they spend their money.

“We’re pretty frugal,” Valenzuela said. “We hardly use the air conditioner unless it gets pretty hot and humid. We use fans and open all the windows. We use the right kind of paint on the rooms. We don’t do laundry with hot water. We have solar panels that help because it warms up 80 gallons per day, and water heaters consume the most electricity because it produces hot water for the dishwater, washing machine and for showers. We’re paying about the same for electricity — about $150 a month — as we were paying 14 years ago.”

Valenzuela said his family also forgoes expensive items.

“We basically try to save as much as we can,” he said. “As prices of everything else goes up, we’re kind of stuck with that. So you have to be able to change your lifestyle. You can’t spend the way you used to because things are more expensive. You really have to shop around. We’re kind of minimalists. We don’t buy the best car of the year or the best clothing. We just go with the bare minimum.”

In May, DBEDT forecast that inflation would rise 2.5 percent for all of 2017 after increasing 2 percent in 2016 over 2015. The University of Hawaii Economic Research Organization’s forecast, which also came out in May, projected a 2.6 percent full-year increase in inflation.

Tian said he was not surprised by Friday’s inflation numbers.

“It came in at 2.5 percent, and we expected 2.5 for the year, which means the second half of the year will be 2.5,” Tian said.

Honolulu’s inflation rose at a faster pace than the nation’s, which was up 2.2 percent during the first six months on a year-over-year basis.

“A big reason inflation in Honolulu outpaced the national average over the last year was housing, the largest component of the CPI,” said Matthew Insco, a BLS economist. “Housing costs rose 4.1 percent in Honolulu compared to 3.1 percent nationwide from the first half of 2016 to the first half of 2017.”

Housing, which includes shelter, household furnishings, electricity and natural gas, comprises 43 percent of the index. Shelter, a component of housing, tracks how much people are paying for rent and the equivalent that homeowners would charge for rent. Shelter alone represents 36 percent of the index.

Hawaii’s inflation rate has been higher than the U.S. average since 2003 except in 2014 when Honolulu’s inflation was lower than the nation’s.

“The main reasons for Hawaii being higher than the U.S. average are Hawaii’s economic growth was higher than the U.S. during this time, Hawaii’s housing price growth was higher than the U.S. and Hawaii’s energy price growth was higher than the U.S.,” Tian said.