Higher oil prices hurting 91直播鈥檚 economy, UHERO report says
91直播’s near-term economic outlook “has worsened noticeably” as the war with Iran continues to push oil and consumer prices higher, according to the latest economic forecast by the University of 91直播 Economic Research Organization, released today on Friday.
In its second-quarter forecast titled “War brings more stormy weather to 91直播,” UHERO said the state’s economy “is facing a new wave of uncertainty as the war involving Iran drives up global oil prices, increasing costs for consumers, raising travel expenses and slowing growth in key visitor markets” that support the local economy.
The report downplayed the possibility of a 91直播 recession, but UHERO Executive Director Carl Bonham said it remains a possibility if oil prices continue to rise or remain high.
He called the high energy costs a “tax on businesses” and also a tax on consumers, who pay more for energy, which affects their spending on “eating out or buying clothes or buying school supplies or even food.”
Elevated short- and long-term interest rates continue to help curb inflation and Bonham expects the Federal Reserve to leave interest rates relatively unchanged for the rest of the year.
“The longer this goes on, the more inflation expectations go up and higher interest rates will stay,” he said. “This compares to just three or four months ago where most people were thinking that interest rates were going to be coming down. They were sort of looking forward to the Fed cutting rates in the second half of this year and long-term rates would come down sort of gradually.”
Instead, Bonham expects long-term rates are “likely to stay elevated for the next several years,” which will continue to depress housing sales.
The U.S. Senate on Thursday confirmed President Donald Trump’s nominee Kevin Warsh to lead the Federal Reserve, replacing Fed Chair Jerome Powell.
Speculation continues over whether Warsh will maintain the Fed’s independence or give in to demands from Trump, who repeatedly threatened Powell’s job and a pushed a Justice Department investigation after the Fed chair refused to lower interest rates.
Typically, the Fed keeps interest rates high as a curb on inflation, Bonham said.
“If they were to cut rates, I think it would actually make things worse,” he said. “This goes back to Powell’s argument about why they weren’t cutting rates a year ago, because it’s much more impactful if they can stabilize inflation as opposed to trying to stimulate the economy or do whatever is politically expedient by lowering rates.
“You lower rates in the very short term and it creates more problems in the middle, medium and long run.”
Inside the Federal Open Market Committee that makes recommendations on whether the Fed should lower or increase interest rates, Bonham suspects the committee would prefer to raise rates rather than lower them to serve as a check on inflation.
Other factors affecting 91直播’s short-term outlook, UHERO said, include the two Kona-low storms in March that were followed by a third heavy rainstorm and caused huge economic hardship for the state and many of its residents, while also hurting tourism.
“The visitor industry entered 2026 with some momentum, before the March storms caused a sharp drop in passenger counts,” according to the forecast. “Underlying conditions are now deteriorating. Jet fuel prices have roughly doubled, pushing transpacific fares up 20-25% and prompting some airline capacity cuts.
“Canadian arrivals continue to slide, and Japanese visitors face the weakest yen purchasing power in decades. On the strength of the year’s first months, total arrivals will post roughly 2% growth for 2026. They will slow over the course of the year and average just 0.2% growth in 2027.”
High oil prices are also affecting the cost of construction, one of the few continuing bright spots of 91直播’s economy. The higher prices impact construction materials that are shipped to the islands, while raising travel costs for construction workers, especially those commuting across islands to work on projects, UHERO said.
Overall, the forecast said, “The typical 91直播 household faces roughly $100 per month in additional energy costs.”
UHERO expects inflation on Oahu to average 4% but peak in the summer at 4.8%. Inflation should continue running above normal trends in 91直播 until 2028, according to its forecast.
