Isle housing costs squeeze consumers

Honolulu consumers continued to feel the financial pinch during the second half of 2007 as higher housing costs left the inflation rate little changed from the first six months, and prices overall up 4.8 percent for the year.

That put the price of living in paradise far above the nation as a whole -- which saw prices rise 2.8 percent from 2006 -- according to data released yesterday by the Bureau of Labor Statistics of the U.S. Department of Labor.

Honolulu consumer prices, which rose 5 percent year over year during the first six months, barely slowed during the second half of the year and were up 4.8 percent, identical to the full-year figure.

Housing, defined as rent or equivalent payments on a primary residence, household fuels and utilities, and furnishings and maintenance, rose 7.2 percent in 2007 from a year earlier. Rent alone jumped 8.1 percent. The housing index makes up 45.2 percent of the total weight of the index.

"I would hesitate to call (the 4.8 percent second-half number) a deceleration (from the first half of 2007)," said Amar Mann, regional economist for the BLS. "That's still an above-average level relative to the rest of the country."

Nationwide, housing rose 3.1 percent in 2007 over the previous year while the subcategory rent rose 4.3 percent.

Mann noted, though, that Honolulu fared better than the nation in energy costs when household energy and automobile fuel are combined.

"Energy costs did start to rise in the second half of 2007, but if you look at the whole year, it was only a 3.6 percent increase in Honolulu compared with the U.S. average, which was close to 19 percent," he said.

Honolulu's inflation, which was below 2 percent from 1996 through 2002, began to rise in 2003 when it hit 2.3 percent. It then climbed to 3.3 percent in 2004, 3.8 percent in 2005 and 5.9 percent in 2006, its highest level since 7.2 percent in 1991.

Hawaii economists had been expecting inflation to slow in 2007 from the previous year, with forecasts ranging from 4.5 percent to 5 percent.

The state Department of Business, Economic Development and Tourism was at the low end, with a forecast of 4.5 percent. Bank of Hawaii econmist Paul Brewbaker had projected 4.6 percent. Professors Carl Bonham and Byron Gangnes of the University of Hawaii Economic Research Organization, or UHERO, was at 5.0 percent, as was First Hawaiian Bank consultant Leroy Laney, a professor of economics and finance at Hawaii Pacific University.

Laney said he wasn't much surprised by the new data, and noted that the number still remains high because of the lofty level of home prices in Hawaii in 2004 and 2005. Even though the housing index doesn't measure sales prices of homes, it does measure rent and what homeowners say they would charge for rent if they were seeking tenants.

"The big run-up in home prices feeds into the index slowly," Laney said. "The last time we had this was back in the late 1980s and early 1990s, and it had a lag effect on inflation. The overall index in 2007 was about a percentage point lower than the previous year when it was 5.9 percent, and while it's still extraordinarily high, most of that is being moved by housing, so gradually it will probably slow down."

For 2008, Laney is calling for inflation to slow to 4 percent while Brewbaker, DBEDT and UHERO are forecasting a 3.8 percent year-over-year increase.

Laney said he agrees with some economists that the U.S. is "probably" in a recession, but added that "we can still avoid a recession here."

In the area of gasoline, where Honolulu has the highest price for regular in the nation at $3.35 a gallon, according to the most recent Lundberg Survey of 7,000 stations nationwide, prices in Honolulu rose 4.2 percent in 2007 over 2006. Nationwide, gas prices soared 8.2 percent.

In the broader transportation category, which includes gas, new and used vehicles, motor vehicle parts and equipment, maintenance, motor vehicle fees and public transportation, the index rose 1.4 percent in 2007 compared with a 2.1 percent increase nationally. Transportation makes up 17.5 percent of the overall Honolulu index.

Food and beverage costs rose 5.5 percent for the year, higher than the 3.9 percent nationally, as nationwide grocery prices rose at the highest rate in 17 years. Food and beverages comprise 15.7 percent of the overall Honolulu index and includes both food eaten at home and at restaurants.

In other categories, apparel fell 0.2 percent, recreation rose 1.5 percent, education and communication was unchanged and other goods and services rose 4.6 percent.

Honolulu consumer prices

Federal data shows that inflation in Honolulu last year remained high, but eased from 2006's 5.9 percent, which was the highest since the early 1980s.

Percent change to 2007 from 2006

Overall	+4.8%
Housing	+7.2%
Transportation	+1.4%
Food/beverages	+5.5%