the low nominal interest rate environment, debt servicing cost as a percentage of disposable income remained unchanged at a relatively low level of 6½ per cent. the monetary and credit aggregates have also been increasing at rates consistent with strong domestic demand. year - on - year growth in m3 picked up from 17, 1 per cent in june 2005 to 19, 9 per cent in july and 19, 0 per cent in august. total domestic credit extension grew by 18, 0 per cent in july and 18, 3 per cent in august. twelve - month growth in bank loans and advances to the private sector remained above 20 per cent, with increases in mortgage advances reaching 26 per cent in august. the latter reflects continued buoyancy in the housing market, although the rate of increase in house prices has fallen steadily since september 2004. strong domestic demand and high international crude oil prices have impacted on the current account of the balance of payments. although the deficit on the current account of the balance of payments as a percentage of gdp contracted to 3, 4 per cent in the second quarter of 2005, data for july and august indicate a possible widening of the trade deficit in the third quarter. the current account however remains financed by capital inflows, and the international liquidity position of the bank increased to a level of us $ 16, 1 billion at the end of september. world inflation is expected to be negatively affected by higher oil prices. the imf now predicts that world inflation in 2006 will average 3, 7 per cent, compared to the april forecast of 3, 1 per cent for the same period. nevertheless this is lower than the revised 3, 9 per cent average expected for 2005 and 2 / 3 indicates that world inflation appears to be well contained. world growth is expected to be sustained at a robust rate of 4, 3 per cent in 2006 although it has moderated somewhat since last year. not all developments have been negative from an inflation perspective. although inflation expectations have deteriorated moderately, there is no evidence that this has impacted on wage settlements. unit labour costs in the first half of this year increased at rates within the inflation target range, measuring 4, 6 per cent and 5, 3 per cent in the first two quarters of this year. the nominal effective exchange rate of the rand depreciated by 0, 3 per cent since the last meeting of the mpc, but it has been relatively stable over the period. the volatility that did occur was to a large extent

t t mboweni : monetary and economic trends in south africa statement of the monetary policy committee by mr t t mboweni, governor of the south african reserve bank, at the south african reserve bank, victoria, 13 october 2005. * * * introduction for the past two years, cpix inflation has been within the inflation target range of 3 - 6 per cent. in recent months, however, oil price developments have posed an increasing risk to the continued attainment of the inflation target and since the last meeting of the monetary policy committee, cpix inflation has risen by 1, 3 percentage points. these increases were in line with expectations, and our current forecasts show that we should remain within the target range over the forecast period. more recently there has been some respite in the oil market, and prices have moderated from recent peaks caused by hurricanes katrina and rita. however, oil prices remain at high levels and continue to be of concern. despite the petrol price increases, the economy continues to perform at a robust pace, domestic demand remains strong, and formal sector employment has increased. recent inflation developments inflation as measured by the consumer price index for metropolitan and other urban areas excluding the interest cost on mortgage bonds ( cpix ) reached a low of 3, 1 per cent in february and then began to increase, mainly as a result of petrol price movements. after measuring 3, 5 per cent in june, cpix inflation increased to 4, 2 per cent and 4, 8 per cent in july and august respectively. during these two months, the petrol price increased by a total of r0, 56. excluding petrol and diesel costs, cpix inflation measured 3, 6 per cent in both july and august having averaged 3, 4 per cent for the previous 12 months. this indicates that thus far there has been limited pass - through from petrol prices to prices of other goods and services. other categories of goods and services that have shown significant price increases are tobacco products, domestic workers ’ wages, medical costs and education. in contrast, prices of clothing and footwear have continued to fall, while most other categories show very subdued price increases. despite recent increases in the maize price, food price inflation has remained low, measuring 2, 7 per cent in august. administered prices excluding petrol rose at 5, 9 per cent, marginally below the upper limit of the inflation target range. however if the petrol price is included, administered prices increased by 11, 2 per cent. production price inflation has