This morning, Ireland’s Central Statistics Office (CSO) has released its inflation figures for October 2012. The monthly headline Consumer Price Index (CPI) fell by 0.1% compared to September 2012, and is up 1.2% year-on-year. October’s results mirror those of September and continue a subdued trend seen in recent months compared with the 2%+ that pertained before January 2011. If this low rate of annual inflation continues and if our real GDP does in fact grow by 0.4% as forecast by the European Commission yesterday, and if the €14bn year-to-date deficit recorded in the October 2012 Exchequer Statement worsens, then Ireland may miss the 8.6% deficit:GDP target as set out in the Memorandum of Understanding with the so-called bailout Troika, which may herald intensified austerity with bigger budget adjustments.
Housing has stopped being the biggest driver of annual inflation, mostly because mortgage costs have been declining – by 18.1% in the past year, as ECB rate cuts and greater scrutiny of variable mortgage interest rates take effect. Just a few months ago, mortgage interest was rising by 20% per annum, and as mortgage interest costs account for nearly 6% of the basket which measures inflation, the impact on inflation was substantial.
Energy costs in homes on the other hand, which account for 5% of the total basket examined by the CSO, have risen by 9.1% in the past 12 months, mostly driven by the 9% price hikes at the ESB, and in October 2012 at Bord Gais.
Elsewhere, private rents rose by 0.7% in the month of October 2012 – this after a 0.9% increase in September 2012, a flat month in August and three months of declines in April-June followed by a small increase in July – and over the past year, such rents are up by 1.5% according to the CSO – there is some small rounding in the figures above which show 1.7%.
It seems that in our financial crisis, the big correction in rent took place in 2009 with a 19% maximum decline, compared to a decline of just 1.4% for all of 2010. Since the start of 2011 there has been a 5.5% increase (mostly recorded in February and October 2011 and February and September/October 2012).
At the start of January 2012, the Department of Social Protection reduced its rent assistance payments by up to 29% (an average of 13%) and the Department says that some 40% of the rented market in the State is affected by rent assistance payments, which at the end of 2011, was paid to 98,603 households. The Department’s 40% is derived from information provided to it by the Private Residential Tenancies Board, but the Department seems to have conceded recently that the figure may be lower in the order of 30%.
The Department is projecting it will save €55m in 2012 from its €500m budget for rent assistance, the saving comprising €33m to changes to the minimum contribution and €22m in relation to the new maximum limits. The prospect of further cuts to rent assistance in the forthcoming Budget 2013 to be announced in December 2012, is very real, this despite the report by Focus Ireland this week which highlighted the accommodation difficulties caused by the reductions in rent limits and increases in contribution.
In the past, private rents have tended to fall in line with rent allowance even though many landlords will not accept rent allowance tenants. The September and October 2012 increases are surprising against pressures from socially assisted reductions. Property commentators including those in NAMA have pointed to a buoyant rental market as one of the bright spots in an otherwise dismal property market, but that buoyancy may deflate in coming months as the artificial supports of State-aided rent assistance dissipates. The results from the CSO this morning echo those of DAFT.ie which yesterday published a quarterly report showing 0.7% increases nationally but near 3% per annum increases in Dublin.