Continued respite for consumers, while NTMA raises another €750m

Data released this morning by the CSO show that prices on average, as measured by the CPI, were 0.3% y/y higher in April, up from 0.2% y/y in March. This extends the run of sub-1% y/y readings to 14 months.

Prices rose 0.1% m/m during April. Last month saw notable increases in ‘Transport’ (+0.5% m/m), helped by a 6.6% m/m increase in air fares, and ‘Miscellaneous Goods & Services’ (+0.3% m/m), driven by higher health insurance costs.

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Declines were observed in ‘Furnishings, Household Equipment & Routine Household Maintenance’ (-0.8% m/m), with widespread discounting remaining a factor, notwithstanding the brighter signs emanating from the property market, and ‘Housing, Water, Electricity, Gas & Other Fuels’ (-0.2% m/m), due to lower mortgage interest and heating oil costs. Overall, 5 of the 12 headings within the CPI posted a m/m increase, with 4 decreasing and 3 unchanged on the month.

One sub-index within the CPI that we closely monitor is the ‘Private Rents’ component, given the extent to which elevated yields are supportive of the outlook for continued price appreciation in the key urban centres. During April ‘Private Rents’ were +0.2% m/m and +9.1% y/y. Rents have now risen 19.1% from the trough reached in December 2010, but remain 11% off peak (April 2008) levels. The latest published rental yield data (Q4 2013) from Daft.ie showed yields across Dublin ranging from 5.2% to 8.1%, while in the other cities (Cork, Limerick, Waterford and Galway) yields ranged from 6.5% to 7.2%. We expect prices across Ireland’s cities to push higher over the remainder of this year and into 2015 given the brighter outlook for the economy, improving credit availability and a paucity of both primary (annual completions are running at c. 25% of the long-run average) and secondary supply, which is unlikely to be corrected in the near term.

The above reaffirms that muted overall price pressures continue to provide an element of respite for Irish consumers – for now. As the recovery gathers momentum we would expect the rate of change in the CPI to pick up.

NTMA raises another €750m

In other news, the NTMA has completed an auction of €750m of the 3.4% Treasury Bond 2024 at a yield of 2.73%. Total bids received amounted to €2,072m (bid-to-cover ratio of 2.76x). Today’s yield compares favourably with the 2.92% achieved on the preceding auction of the same bond on 10 April.

The NTMA has now raised €6.5bn in the year to date, bringing it 81% of the way towards its full-year funding target of €8bn. Today’s move is the final bond sale of Q2, with the NTMA releasing details of its bond issuance plans for the third quarter “at a later date”. The NTMA will also raise €500m from a T-bill sale next Thursday, details of which are due to be released on Monday. Philip O’Sullivan, Investec.