Food and petrol price increases were again the main contributors to the rising trend in the consumer price index excluding interest rates on mortgage bonds, Reserve Bank governor Tito Mboweni said on Thursday.

Briefing the media following a two-day Monetary Policy Committee meeting, Mboweni said CPIX inflation had increased from 13 percent in July 2008 to 13.6 percent in August.

Food prices increased at a year-on-year rate of 19.2 percent in August, driven to a significant extent by grain product prices which increased by 36.5 percent.

Petrol prices increased at a year-on-year rate of 45.9 percent in August, despite the 30 cent per litre reduction in the petrol price in that month.

Food and petrol

"If food and petrol were excluded, CPIX inflation would have measured 8.1 percent in August, compared with 7.4 percent and 6.3 percent in the prior two months."

He said the significant upward trend in this measure was mainly due to electricity price increases of 23.9 percent and 28.2 percent in July and August respectively, but it also reflected continued generalised inflation pressures.

Mboweni said producer price inflation also remained strong.

Producer prices increased at a year-on-year rate of 19.1 percent in August.

The rate of increase in agricultural food prices declined to 2.3 percent, but manufactured food price inflation remained elevated at over 20 percent.

He said the bank's most recent central forecast showed a moderate improvement in the inflation outlook since the previous MPC meeting.

He said according to the most recent inflation expectations survey conducted on behalf of the bank by the Bureau for Economic Research at the University of Stellenbosch, CPIX inflation was expected to average 10.2 percent in 2008 and 8.1 percent and 7.4 percent in 2009 and 2010 respectively.

The increases in 2009 and 2010 were significantly smaller than the increases observed in the previous survey.

"However, only the financial analysts expect inflation to return to within the target range by 2010," he said adding that this was similar to a Reuters consensus survey conducted in August which indicated that inflation was expected to average 7.5 percent in 2009 and 5.9 percent in 2010.

Inflation expectations as measured by the yield differential between conventional government bonds and inflation-linked bonds indicated some improvement in expectations over the longer term.

Break-even expectation

The break-even inflation expectation declined from just over nine percent in July 2008 to around 6.3 percent at the end of September.

"The yield curve has remained inverted but has moved down since the previous meeting," he said.

The continued upward trend in wage settlements also indicated that inflation expectations were not well anchored.

According to the quarterly economic survey of StatsSA, year-on-year growth in unit labour cost measured 10.5 percent in the second quarter of 2008, compared to 10.7 percent in the previous quarter.

The most recent wage settlement survey of Andrew Levy Employment Publications, Mboweni said, showed that the average wage settlement rate increased to 9.6 percent in the nine months to September 2008 compared with 8.3 percent in the six months to June 2008.

Sapa