Friday, March 23, 2012

The Cost of Living in Paradise

When people hear that my family is from Hawaii, most of them express jealousy. Warm weather, nice beaches, fresh fruit? Paradise. But little do they know the cost of living in paradise, especially when it comes to oil.

Oil has a large impact on the Hawaiian economy.

The biggest effect is on tourism. The biggest chunk of income in Hawaii's economy is from the tourism industry. Five of the eight Hawaiian islands, Hawaiʻi, Oʻahu, Maui, Kauaʻi, and Lānaʻi, have a thriving tourist business. Because the weather in Hawaii is nice and mild year round, visitors come from all over the world all year, particularly during the summer, winter, and holidays. In 2003, there were over 6.4 million visitors to Hawaii, and they spent a total of over $10 million. Fuel represent around 40% of of airline expenses, and this has a direct influence on the airline business, which directly influences the the tourism industry.

Studies show that a "10% decrease in oil prices implies a 0.7% increase in US visitor arrivals, and a 1% increase in US employment leads to a 2.4% increase in US visitor arrivals." High oil prices were probably at fault for a decline in visitors earlier in 2011.

Rising oil prices also cause inflation. Hawaii's oil prices are disproportionately higher than other states, and in 2010 they had a 2.1 inflation rate, one of the highest in the nation. Because of the higher oil prices, the inflation forecast for 2011 was 1.9 percent from the previous estimate of 1.4 percent. The average gas price reached a record $4.59 per gallon last May. All oil in Hawaii must be imported from overseas, and even when the prices drop on the US mainland, prices in Hawaii remain high.


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