An improving economy and low inflation continue to put more money in the pockets of Hawaii consumers.
Honolulu inflation remained far below its historical average and finished 2014 below the U.S. rate for the first time in 13 years, according to a report released Thursday by the U.S. Bureau of Labor Statistics.
HONOLULU CONSUMER PRICE INDEX
Year-over-year price changes in a number of spending categories in 2014:
-0.3%
Alcoholic beverages
-6.6%
Apparel
2.9%
Education and communication
2.6%
Electricity
2.0%
Food and beverages
-2.3%
Gasoline
1.2%
Housing
1.9%
Medical care
2.4%
Recreation
1.4%
Transportation
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Sharp drops in the cost for apparel and gasoline contributed to consumer prices rising just 1.4 percent last year. The U.S. inflation rate was up 1.6 percent during the same period.
Honolulu inflation rose 1.8 percent during the second half of 2014 compared with the year-earlier period and was up 1.3 percent from the first six months of the year.
The last time Honolulu’s inflation rate for the entire year was below the U.S. level was in 2002 when it was 1.1 percent in Honolulu and 1.6 percent for the nation.
"Low inflation is good for consumers because they would feel that they have more purchasing power with their money," said Eugene Tian, chief economist for the state Department of Business, Economic Development and Tourism. "The full-year number is very close to the 1.5 percent that we were forecasting. The 1.6 percent inflation rate is considered low compared with Honolulu’s average of about 2.6 percent over the last 20 years. "
Honolulu gasoline, which a year ago was hovering around $4 a gallon, was about $1 less at the end of the year as a result of a 45 percent plunge in global oil prices.
That’s been like a pay raise for Honolulu resident Darien Yanagida.
"I have a Tahoe SUV, and I drive from Kaimuki to Aiea every day and I spend at least half now to fill up my tank. My gas bill at the end of the month used to come out to $420. Now it’s $275," she said. "I can spend it at other places now like Amazon."
Apparel incurred the biggest drop of any sector for Honolulu in 2014 with a decline of 6.6 percent that Tian referred to as the continuation of a national trend.
"I’m surprised that at stores like H&M in Waikiki and those kinds of stores that their clothes are really, really cheap," Yanagida said.
She said the low inflation also is helping put her daughter through college.
"My daughter goes to Pacific University in Oregon, and I pay her tuition monthly because I don’t want her to pay any loan," she said. "With the economy being so good, it’s helping me with her education costs. I’m getting married soon, so I’m saving that much more. The gas really affects my budget."
Hawaii, which has the highest electrical costs in the nation, saw prices in that sector rise 2.6 percent last year even though bills on Oahu have been dropping in recent months.
"Electricity prices rose in both the U.S. and Honolulu (in 2014)," said Todd Johnson, an economist with the Bureau of Labor Statistics. "While the increases were larger in the nation, the average Honolulu consumer spends a larger percentage of their overall budget on electricity."
Education and communication (2.9 percent), recreation (2.4 percent) and food and beverages (2 percent) also had increases of 2 percent or greater last year.
Housing, a major part of the consumer price index, rose just 1.2 percent. The component is made up of the rent paid for a primary residence and the homeowner’s equivalent of renting a primary residence.
"That (small increase) has something to do with the low mortgage rate and people refinancing their houses so they’re making lower mortgage payments," Tian said.
Hawaii’s economy has been growing moderately, and Tian said that typically inflation moves in the same direction of economic growth, but not this time.
"Usually the two go up in the same direction, meaning when inflation is high, economic growth is high," he said. "So in a normal year, when people see low inflation, they feel the economy is cooling down. This time it’s very different. Inflation is low but the economic growth has increased. The low inflation is mainly caused by the decrease in oil prices. If you look at the whole picture, you would think that anything for Hawaii above 3 percent is too high, and we have 1.4 percent now. That’s good for consumers."
Tian said inflation should remain low throughout this year.
"We expect it to be at a similar level — below 2 percent," he said. "Oil prices will continue to be low, and there is no timetable for the federal government to increase the interest rate. So at least for the first half of the year, the inflation rate will be still low. That means homeowners will pay lower mortgage rates."
