Your $100 will not be worth as much this year as it was last year.
And that’s pretty much across the board, no matter what you buy.
In fact, according to the Hawaii Department of Business, Economic Development and Tourism, that $100 will be about $6 less.
That means, using groceries as an example, if you fill your car with the same hundred dollars worth of groceries in 2022 as you did in 2021, due to inflation, you’ll only get $94 worth of goods this year.
This is what inflation looks like: less for more. And inflation, Hawaiian economic experts agree, is present throughout the calendar year.
“It will be real,” said Eugene Tian, a research and statistics officer for the state of Hawaii. “What that means is that people’s purchasing power will decrease. So, with the same amount of money, they will not be able to buy the same amount of merchandise as last year.”
How bad will inflation get in Hawaii, a state that relies on shipping?
The short answer is that it will be the worst the state has seen in the past two decades, experts said. The 4.8% projection is conservative by some estimates, but still double last year’s 2.4%.
But there are some trends the economy is experiencing that will soften the direct impact on the Aloha State. Also, on a larger scale, Hawaii should be doing better than the rest of the United States, which has seen inflation of about 8% so far in 2022 and is expected to remain around 6.2%.
Tian’s office, known as DBEDT, is the one calculating 4.8%. The forecast is in line with projections from other economic experts, including the University of Hawai’i Economic Research Organization, or UHERO, which pegs it even higher at 5.5%.
There is no immediate way to avoid it, the prospect is not flattering. People will get less for more.
“This is not good news,” Tian said.
Reasons behind inflation, and war is only a small component
But this year’s inflation was predictable, experts added. While Russia’s invasion of Ukraine was relatively unexpected, the other factors in the surge were not.
There are three main factors for the rise in inflation, and of those three only the war in Ukraine could be seen as a surprise.
The war is having an impact. Launched on February 24, it triggered a boycott of Russian oil in most of the world market. UHERO did not take the war into account in its latest figures, which are based on Honolulu figures, but DBEDT did.
Tian explained that if the military conflict had never occurred, Hawaii’s inflation would have been around 3.8%, still higher than the previous year, but not twice as high. According to DBEDT’s forecast, the invasion increased Hawaii’s inflation by one percentage point.
The reason that figure isn’t higher is that Hawaii doesn’t actually import as much oil overall compared to the continental US, and not much, on a large scale, from Russia.
Last year, Russia was the No. 2 foreign oil importer from Hawaii to the islands, shipping 6.92 million barrels of crude oil in 2021, accounting for 27% of foreign oil imports. A sizeable figure, Tian noted, but well below the number one importer, Libya, which accounts for 68% of the market.
Tian’s figures are also based on the fact that the war did not last the whole year. No one can say for sure, but the bureau’s method is to use the best information possible.
“No one expects the war to last beyond the summer,” he said.
The other two main drivers of rising inflation were easier to predict than the war, and also the reasons why Hawaii’s inflation would still be higher than last year even without the conflict.
They were the result of federal relief money pouring into residents’ pockets during the pandemic and the result supply chain shortage that affect companies in all sectors from the increase demand for the goods created by the free flow of money.
Those were predictable because they follow the natural ebb and flow of the macroeconomy, Tian explained. When consumers have more money, they spend it. When the demand for goods increases and supply chains struggle to meet it, prices rise. To control rising increases, the Federal Reserve raises interest rates, which means it costs more to borrow money, slowing down the volume of money borrowed, and in turn slowing down the demand to spend it. That slows down inflation, but also economic growth.
Meanwhile, the Fed is expected to adjust inflation rates four to six more times this year to try to rein in what’s going on.
The other reason Hawaii’s inflation rate is expected to remain below the national average is that Hawaii, by comparison, doesn’t import as much merchandise compared to the rest of the US dependent state. In the volume of imports alone, Hawai’i does not compare to the continental United States. In reality, the state also doesn’t consume much more petroleum products than the rest of the US, even though it’s considered a severely energy-dependent state that sits isolated in the middle of the Pacific Ocean.
Hawai’i’s total share of oil spending is around 5%, while the national average is 4%, the UHERO director explained.
Make no mistake, inflation will feel
That said, inflation, as Tian pointed out, will be real, and will be felt by Hawaiians, especially those on fixed incomes with less wiggle room if they haven’t already.
“Where it hits people’s pockets is obviously in gasoline, but even more so in electricity,” Bonham said.
Hawaiian Electric already announced that it expects energy bills to rise by 20% for residents of the Big Island.
But there are other areas residents should keep an eye on, like the aforementioned grocery stores. Bonham said he expects food prices to rise more than in other areas due to the reliance on oil that the agricultural industry requires to produce food.
“In many cases, they have risen more than oil,” Bonham said.
The numbers say it’s true.
The commodities sector has seen the steepest gains to date. Commodities are basically commodities: all the items that people tend to buy.
In January, the commodity inflation rate was 10.7% in Hawaii and 12.3% on the mainland. In February, the continent saw it rise to 13%.
So buying the same amount of gasoline this year could mean going without in other areas for some people.
“That means skipping a meal or cutting back on something that isn’t absolutely necessary,” Bonham said.
Captain Cook resident Danny Shirley is one of those regulars who has already taken notice. Retired, Shirley has lived on a fixed income for several years. He does his grocery shopping in Kealakekua and South Kona and has already cut back on the “goodies” like chips, chocolate bars and other fun snacks that he used to add to his and his wife’s shopping cart. Wasteful trips to McDonald’s? Forget it.
Shirley said she braced herself for the price hike as soon as she saw gas prices go up. She already appears to have wiped out the record 5.9% COLA increase that Social Security added this year.
“I noticed it but, again, I was prepared for it,” Shirley said of what rising gasoline prices meant for prices in other sectors. “It looks like they are 20% higher than they should be.”
Inflation forecasts are just that: forecasts
UHERO was the office that set inflation above DBEDT, estimating 5.5%. UHERO’s calculations also did not include the Ukraine war, and Bonham said he expects his latest calculations to be even higher.
“Frankly, that 5.5 is low,” Bonham said. “It should be closer to 6.5%.”
But there are some positive aspects, both experts agreed.
Inflation is rising, yes, but so is everything else, including wages and tourism numbers. Hawaii is experiencing pre-pandemic numbers for the first time since 2019. Industry is the state’s economic engine, and international tourism is also making a comeback this year. An influx of Japanese visitors adding to mainland tourists who have already returned in large numbers will be a major reason Hawaii is expected to continue to experience economic growth after 2022 is over.
According to DBEDT projections, the state will see a 3.4% growth rate this year.
Both offices see this as something of a one-year spike, too, which Bonham called a “blink” in the grand scheme of things. UHERO estimates that inflation will fall at a rate of 3.3% next year, while DBEDT anticipates 2.6%.
They also reminded the neighbors that these are projections. No one can say for sure what will happen that could affect you, for better or worse.
One figure that the projections did include so far is what has happened in the housing industry, at least according to the statistics. Perhaps surprisingly, the numbers from Hawai’i say the state hasn’t dramatically impacted rents and housing the way it already has on the mainland.
Hawaii, overall, has seen rents rise 3%, experts said, a “kind of hope,” Bonham called it.
However, real estate and property management professionals on the island of Hawaii who spoke with Big Island Now said those numbers don’t reflect what’s really happening in the local market.
Several of them told Big Island Now that they had never seen rental prices go higher than ever in the last six to 12 months.
Krystal Vartanian Jacobs, a property manager for LUVA Real Estate in Kona, and Gretchen Osgood of Hawaiian Isle Real Estate are two in the industry who said the prices are the highest they’ve seen.
Vartanian Jacobs recently rented a three-bedroom place for $3,600 a month, up from $2,400 last year. She wasn’t raising prices, simply adjusting rates on a then-vacant home to current market conditions at the owner’s behest, she said.
The listing also did not last long in the market, he said.
“Out here it’s absolutely inflated,” he said.
Osgood also recently had a similar rent with a similar increase. He also saw a Kona Sea Ridge condo rise $100,000 in price in six months. What you’re seeing, he said, is the “biggest jump I’ve ever seen.”
That is why both are skeptical that the statewide number reflected in the housing industry will remain as it is now. So is another property management company in Kona, which declined to comment but said it is seeing a 40% increase in rental prices.
Everyone attributed it to a lack of supply and, of course, inflation.
“It’s across the board,” Osgood said.