Data just released by Ireland’s Central Statistics Office (CSO) show that the headline rate of inflation moderated to +0.4% y/y in May, versus 0.5% y/y in each of the preceding two months. On the EU’s preferred HICP measure, the annual rate of inflation was unchanged at 0.5% for a second successive month.

During May consumer prices decreased by 0.1% m/m. Of the 12 components within the CPI, 7 recorded monthly declines, with only Alcoholic Beverages & Tobacco (+0.3% m/m, led by a rise in wine prices), Communications (+1.4% m/m due to a hike in telephone charges) and Restaurants & Hotels (+0.5% m/m, with a 2.7% increase in accommodation charges behind this) seeing increases. Prominent among the decliners in May were Housing (-0.6% on the back of lower mortgage interest costs following the ECB’s rate move), Clothing & Footwear (-0.6%) and Transport (-0.5% as a fall in petrol and diesel prices more than offset a rise in air fares).

One subcomponent we monitor closely is the Private Rent index. Elevated yields are supportive for prices in the key urban centres, and we note that the annual rate of inflation in private rents has increased to +5.6%, its fastest pace of growth since July 2008. The latest rental report from Daft.ie, the country’s largest property website, showed that in Q1 2013 rental yields across Dublin ranged from  5.4% (South County Dublin) to 7.2% (West County Dublin), while yields in Limerick, Cork, Waterford and Galway cities ranged from 6.1% to 6.3%.

The annual rate of inflation for services is 1.8%, while for goods it is -1.3%.

In all, with the headline rate of inflation at its lowest level since August 2010, trends in headline prices continue to provide respite for Irish consumers. We expect inflation to remain muted over the coming months, but caution that October’s budget could see upward pressure on the CPI should further indirect tax increases be unveiled by the government.