Rising inflation costs continue to affect households across the nation, based on the latest Consumer Price Index (CPI) Summary from the US Bureau of Labor Statistics. The 12-month increase for all items was 8.6% as of May 2022, the largest 12-month increase since December 1981.
Experts at the Economic Research Organization at the University of Hawaii (UHERO) conducted an analysis of the phenomenon they coin as “excess inflation,” and how it’s currently affecting Hawaii, where geographic isolation, heavy reliance on the hospitality industry, and a higher cost of living present unique barriers to public health and economic stability.
Hawaii’s CPI is also experiencing higher increases than prior years. Honolulu’s elevated inflation rate reached 7.5% in March 2022 compared to the previous year, an increase not seen since 1991. Inflation in recent years averaged just under 2% by comparison.
Further analysis from UHERO showed Hawaii households spent an average $61,530 per year, the majority of which went to housing and utilities (38%). Other significant expenses include food, transportation, and health care costs.
UHERO calculated that inflation is costing Hawaii households between an additional $1,763 and $7,206 per year. Transportation costs make up the majority of excess inflation costs, followed by housing and food prices.
Inflation impacts households in different ways, depending on factors such as location or income. For example, the analysis found median-income households (earning between $38,800 and $70,000 per year) spend the most on transportation, meaning they may live in more rural areas. Low-income Hawaii households (earning under $38,800 per year) spent nearly half of earnings on housing alone, compared to the highest income-earning households (over $163,600 per year), which allocated only 32% of their income on housing.
Steven Bond-Smith, PhD, a UHERO Assistant Professor and co-author of the inflation analysis, says Hawaii experienced a 10% inflation rate on medical care compared to the previous year. He noted individuals might not necessarily feel the increase, which could be offset by the state’s long-standing Hawaii Prepaid Health Care Act, which requires employers to provide health coverage.
However, he said that inflation pressures on housing, transportation, food, and other social determinants of health can cause some individuals, particularly those in lower-income groups, to defer medical care and prioritize more immediate needs.
“In order to be able to afford fuel and food and shelter and so on, [lower-income groups] are going to have to be able to find that extra money somewhere, either from pay increases for their salary or wages, or by cutting costs somewhere else,” he said. “People might forgo some health care costs because food and shelter and fuel is more important … It’s probably more likely for certain types of care as well. Dental care, for instance, might be something that [individuals] forgo much more quickly.”
Research shows that deferring routine, preventative health care services can lead to both poorer health outcomes and higher health care costs in the long term.
To curb rising inflation costs, the Federal Reserve is hiking up interest rates. On June 15th, it raised interest rates 3 quarters of a percentage point, the highest increase since 1994. State-level financial relief actions have also occurred in recent weeks. On June 22nd, Gov. David Ige signed bills that would 1) increase the minimum wage from $10.10 per hour to $18 per hour by 2028 and 2) permanently establish a refundable Earned Income Tax Credit.
In addition to these shorter-term changes, Bond-Smith said Hawaii should look towards long-term solutions. Bond-Smith’s area of expertise is focusing on ways to diversify Hawaii’s hospitality-reliant economy. While he doesn’t expect the state to become a sudden leader in the tech sector, he said locally-based ventures—like agriculture and fisheries—have the potential to grow in the coming years.
“What’s especially important for Hawaii is to find things that are really locally unique,” Bond-Smith said. “These are industries that can remain in Hawaii for the long term, rather than something like the high tech industry. A high tech startup is very likely to move to Silicon Valley very quickly, rather than remain in Hawaii. The types of areas that the state government could be supporting for entrepreneurship and for diversification should be the more sticky, local, unique, and related areas.”