Honolulu inflation is sluggish in first half of the year

Honolulu inflation slowed in the first half of the year as the state economy continued to see modest growth.

The consumer price index — the most widely used measure of inflation — rose just 1.6 percent from the year-earlier period, according to data released Thursday by the U.S. Bureau of Labor Statistics. That was slower than the 2.5 percent increase in the first half of 2017 and the smallest first-half gain since Honolulu inflation edged up just 0.7 percent in the January-June period of 2015.

“It’s not a recession, it’s just the economy is growing slower,” said Eugene Tian, chief economist for the state Department of Business, Economic Development and Tourism. “Nobody projected 1.6 percent; this is low.”

This was just the second time since 2003 that Honolulu’s inflation rate was lower than the national rate, which came in at 2.5 percent during the first half of 2018. The first time was in the first half of 2014.

Among the categories pulling down consumer prices this year were apparel (off 2.8 percent) and education and communications (down 2.5 percent).

Shelter, which covers the cost of rent and owners’ equivalent of rent, gained just 1.7 percent. Shelter comprises about one-third of the index.

For all of 2017, Honolulu inflation rose 2.5 percent, with higher gas and electricity prices driving the increase. Once again, both those energy sectors were at the forefront with gas prices up 14.8 percent and electricity gaining 6.4 percent during the first half of 2018.

Hawaii has long had some of the highest energy costs in the nation. The state’s average price of electricity of 31.21 cents per kilowatt-hour through April was the highest in the nation and more than double the U.S. average of 12.89 cents, according to the U.S. Energy Information Administration.

The cost for regular gasoline in Hawaii — $3.76 a gallon through Thursday — also ranked first in the nation and was 88 cents higher than the national average of $2.88, according to AAA.

In other categories, transportation increased 4.3 percent, food and beverages was up 2.1 percent, alcoholic beverages rose 1.8 percent and recreation gained 0.9 percent. The Bureau of Labor Statistics did not release data for medical care as the agency has in the past.

Local economists were expecting inflation to increase this year. Both DBEDT and the University of Hawaii Economic Research Organization are forecasting Honolulu inflation to rise 2.6 percent over the previous year.

“Lower inflation implies higher purchasing power of income,” Tian said.

Lower income growth in the state is contributing to the modest inflation number, he said.

“Inflation usually goes with income growth,” he said. “When income grows, inflation goes up. But our income growth is low. Income growth was only 2.9 percent for the first quarter (the latest available data); normally it’s about 5 percent.”

DBEDT is projecting that Hawaii’s inflation-adjusted gross domestic product — the total dollar value of all goods and services — will be 1.9 percent this year compared with a national forecast of 2.9 percent.