SSIA maturity 'driving up prices'

The imminent maturing of Special Savings Incentive Accounts (SSIAs) is already driving up prices in the wider economy, according to a new analysis from Davy.

The broker argues that the "SSIA effect" is already hitting inflation, even though the first account will not mature until the end of next month.

The bulk of the 1.1 million SSIAs opened between 2001 and 2002 will not complete their terms until this time next year.

When all the accounts have matured, they will have released €16 billion into the economy.

Rossa White, an economist with Davy, said he has raised his expectations for consumer spending this year to reflect the pre-emptive SSIA spend.

He increased his forecasts after noting "roaring" car and retail sales in the first few months of the year.

Mr White believes that the latest data for both retail sales and inflation show evidence of SSIAs. "SSIA funds are being spent in advance of payout, through short-term borrowing or a lesser propensity to save out of income. Either way, households are smoothing their consumption in textbook fashion," he noted yesterday.

Retail sales increased by 6 per cent in February, while inflation in March reached 3.5 per cent, its highest point in almost three years. Mr Rossa sees SSIAs as having had a major impact in both trends.

He highlighted, in particular, strong services inflation, higher prices for bars and restaurants and buoyant bar sales.

Mr White also pointed to the ending of a two-year period of food price deflation. "It would be silly to rule out a link to the amount of cash in the pockets of Irish consumers," he noted. He does not expect higher inflation to spark a consumer slowdown.

The SSIA impact is high in the minds of many economists at the moment, with Austin Hughes at IIB Bank and the Economic and Social Research Institute predicting earlier this week that the accounts could boost house prices by up to 10 per cent.

Another study released yesterday has meanwhile claimed that houses in Dublin witnessed a doubling in price growth in the first three months of this year.

Estate agent Douglas Newman Good (DNG) said the average price of a second-hand house in Dublin grew by 10.4 per cent in the first quarter. This was twice as high as the strongest quarterly rate recorded in 2005.

Annual house price inflation in Dublin increased from 22 per cent to 25.8 per cent in the year to March, according to DNG, which generates its revenues from selling properties.

The study found that the average number of days needed to agree a sale in Dublin fell from 59 to 55 days at the start of the year. DNG predicts that second-hand house prices there will increase by 18 per cent this year.