At the age of 79, Ilse Hardy may give up her beloved Mercedes 300SE for TheBus, after legislators this week approved a bump in the state tax on petroleum products and the Honolulu City Council considered raising the county gas tax by 3 cents per gallon.

"This is terrible," Hardy said after paying $24 for seven gallons of gas. "It's a shame. We already have the most expensive gas prices in the nation."

Indeed, the average price of a gallon of regular unleaded gasoline in Hawai'i was $3.55 this week, highest in the country, followed by $3.51 in Alaska and $3.11 in California, according to the AAA Weekend Gas Watch.

In Honolulu, gas prices went up a penny to $3.44 per gallon, 5 cents more than last month and $1.06 higher than at the same time last year.

Gas station operators are certain to pass any increased fuel taxes on to consumers, meaning individual drivers will have to dig even deeper to fill up their vehicles, said Bill Green, a former owner of and now consultant to Kahala Shell.

"To even suggest it would not be passed on is ridiculous," Green said. "You don't have a choice. You either pass it on or close your doors."

For most stations, gas sales typically serve to draw customers in to buy more profitable items such as food and car washes.

"Gas is merely a traffic-generating thing," Green said. "If all you're selling is gasoline, then you have to have really low costs, like low rent. But our rent is about $1,000 per day."

Signs of an economic recovery have been fueling an increase in oil prices, which last week surged to 18-month highs above $87 per barrel, said AAA Hawai'i's acting branch manager Chris Olvera.

"The jump in prices was largely due to investor optimism on the pace of the economic recovery starting to show up in some sectors," Olvera said.

Deficit measure

Higher oil prices mean higher prices at the pump, which are likely to go even higher now that state House and Senate negotiators agreed to increase Hawai'i's "barrel tax" on petroleum products from 5 cents to $1.05 as one measure to chip away at the state's staggering $1.2 billion deficit through the coming fiscal year.

The tax increase will boost gas prices by an estimated 2.4 cents per gallon and raise residential electric bills by 78 cents per month.

Gov. Linda Lingle has said she's likely to veto the barrel tax hike, although majority Democrats are in position to override the Republican governor's veto.

Honolulu drivers will get a chance to oppose the City Council's tax increase resolution for the 3 cents per gallon when it comes up for a hearing Wednesday. The resolution would increase the county fuel tax from 16.5 cents per gallon to 19.5 cents beginning in January.

"I can see where they need to come up with ways to raise money, but I don't like anything having to do with gas prices going up," said Karyl Choate, a real estate broker who uses her 2003 Jaguar S-type car for business. "I don't want it coming out of my pocket."

Choate paid $48 for nearly 13 gallons of premium gas for her Jag, then said: "With gas prices as high as they are, it's tough on everybody."

Over $5 on Moloka'i

Gas prices are even higher on the Neighbor Islands.

In Hilo, Thursday's average price of $3.56 a gallon was 2 cents more than the previous week and $1.07 more than at the same time last year, according to the AAA Hawaii Weekend Gas Watch. Then the average price dipped by 3 cents yesterday.

The average price in Wailuku was $3.90 a gallon, up 2 cents from the previous week and $1.23 more than last year.

"It's over $5 on Moloka'i," said former Moloka'i resident Kelsey Borden. "I just pay it because I need gas."

Her friend, Charis Thomas, believes that Honolulu drivers have no options in the face of higher gas taxes and higher gas prices.

"It's ridiculous but what can we do? We have no choice," Thomas said.

Darryl Jones of Waipi'o Gentry filled his 2003 Ford F-150 truck only about half-way after paying $52 for the 15 gallons of regular unleaded.

"We need to do something about this," he said. "Don't we have any rights? Aren't we supposed to be free? Any increase is never a good thing."

Reach Dan Nakaso at dnakaso@honoluluadvertiser.com.