Hawai'i's economy is expected to grow at a slower rate than previously thought this year as a rising inflation rate continues to eat into consumers' purchasing power, according to a state report issued yesterday.

Growth in real income and real gross state product for 2006 were revised downward by the Department of Business, Economic Development and Tourism. In addition, visitor arrivals now are expected to rise 2 percent this year, rather than the 2.8 percent as previously forecast.

However, the surprises weren't all bad. Faster-than-expected job growth during the first half of this year caused the state to boost its forecast for total wage and salary job growth to to 2.5 percent from 2.2 percent this year.

Many of the revisions to the state's quarterly economic forecast were expected in the wake of a report last week that inflation in Honolulu during the first half of this year rose at an unexpectedly high 5.8 percent rate.

That increase in the cost of living means inflation-adjusted income this year will be lower than previously thought. Real income in 2006 now is forecast to rise 2.1 percent, versus a prior forecast of 2.9 percent. Real gross state product is expected to rise 2.7 percent this year, compared with a prior forecast of 3 percent.

"The economy is still growing, but slower," said state economist Pearl Imada Iboshi. "We're still predicting real personal income growth of 2.1 percent, and that's not bad."

According to DBEDT, the tourism industry is expected to host a total of 7.49 million visitors this year, which would top a record set in 2005. Visitor spending is projected to rise 7.1 percent to $12.75 billion this year.

The inflation rate should increase 4.8 percent this year, versus a previously expected rise of 3.8 percent. The inflation rate is expected to rise another 3.8 percent in 2007.

Reach Sean Hao at shao@honoluluadvertiser.com.