Many people and small businesses racked up debt during the pandemic and are “in catch-up mode,” according to the Council for Native Hawaiian Advancement.

When discussing interest rate increases designed to get inflation under control in August, Federal Reserve Chairman Jerome Powell predicted pain for households.

“These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain,” Powell said at a symposium in Jackson Hole, Wyoming.

Eight months later, Hawaii residents are feeling that pain. The cost of essentials like food, gas and electricity is far higher than before the pandemic.

Cars line up to collect boxes and bags of food packed by volunteers from Angel Network Charities at the Calvary By The Sea Lutheran church. (David Croxford/CivilBeat/2022)

Prices for food at home — essentially groceries — rose 22% between 2019 and 2022 on Oahu, according to the U.S. Department of Labor’s Bureau of Labor Statistics, while the cost of electricity rose nearly 35%. Gasoline prices, meanwhile, rose 53%, according to the bureau.

It’s also a lot more expensive to use a credit card these days. Interest rates for car and home loans are higher. And the pain is magnified in Hawaii, where a high cost of living and relatively low wages have left a large percentage of the population struggling to get by.

Kuhio Lewis sees this as chief executive of the Council for Native Hawaiian Advancement, a community and economic development organization that manages a fund providing access to capital for lower-income Native Hawaiian borrowers.

“It’s not exclusive to Hawaii,” Lewis said of the painful combination of inflated prices and high cost of credit. “But its felt more in Hawaii. People are just getting squeezed.”

Carl Bonham, executive director of the University of Hawaii Economic Research Organization, said that squeeze is no accident. The high interest rates are meant to force people to live within their means — eschewing credit cards and putting off big-ticket purchases for things like cars and homes.

“What the Fed is trying to do is make it more expensive to buy things so you buy less,” Bonham said. “They don’t have other ways to do that.”

A series of interest rate increases has pushed the prime lending rate, which banks charge for loans, to 8%. That’s led to higher rates for all manner of consumer debt, from car loans to credit cards. That’s especially bad news for residents in Hawaii since they tend to carry credit card debt balances far higher than the national average.

The average credit card debt in Hawaii was just over $8,500, according to a recent LendingTree study based on the most recent data from the Federal Reserve Bank of New York. That placed Hawaii seventh nationally in terms of most credit card debt per person. Kentucky was lowest with just over $5,400.

These factors have led to increases in customers coming to the Council for Native Hawaiian Advancement’s Community Development Financial Institution seeking to consolidate their debt, Lewis said. In their role as lenders of last resort, CDFIs can avoid increasing interest rates the way banks do, Lewis said. But in the council’s case its fund is limited to $16 million.

Meanwhile, he said, a lot of people and small businesses racked up debt during the pandemic, which began in March 2020.

Now, he said, “They’re all in catch-up mode.”

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An insidious aspect of Hawaii’s high cost of living is that it often encourages people to leave the state — a trend that shows up in a declining population, even though births outnumber deaths each year.

To the extent that the people leaving are young people starting careers and families, the outmigration can have a particularly pronounced impact — leading to an erosion of the tax base and a further decline in population, as people who might have babies in Hawaii go elsewhere to have them.

The good news is price increases in Hawaii are slowing down, said Byron Gangnes, a UHERO econoimist who studies macroeconomics and the global economy, including impacts of federal and local policies.

Food, gasoline and electricity prices in Hawaii in particular are leveling off, which could give some relief to consumers, he said. But the leveling could be fragile, he said, as the OPEC cartel of oil-producing nations has announced its members will cut production to drive prices up.

Meanwhile, the war between Russia and Ukraine has driven up grain prices, Gangnes said, which could put more upward pressure on grocery prices in general.

As for interest rates, Gangnes said, they’re likely to remain high for much of the rest of this year.

“It’s going to take awhile for interest rates to come down,” he said.

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