May 28 (Bloomberg) -- South Africa's inflation rate unexpectedly rose to 10.4 percent in April, the highest in more than five years, increasing chances the central bank will raise interest rates at least twice more this year.

CPIX inflation, which excludes mortgage costs, quickened from 10.1 percent in March, Pretoria-based Statistics South Africa said. Inflation was expected to be little changed at 10 percent, according to the median estimate of 20 economists surveyed by Bloomberg. Prices rose 1.6 percent in the month.

The Reserve Bank has increased its benchmark interest rate five times since June, pushing it to 11.5 percent as food and fuel costs drove inflation above the 3 percent to 6 percent target range. Plans by Eskom Holdings Ltd., the state-owned power utility, to raise electricity tariffs by 60 percent this year may boost inflation further, adding to pressure on the central bank to raise borrowing costs at the next two monetary policy meetings.

``Inflation pressures are persisting,'' said Colen Garrow, an economist at Brait SA in Johannesburg. ``It certainly cements the case for a rate increase in June. The market is now discounting even more rate hikes to curb price expectations.''

The rand strengthened to 7.729 against the dollar as of 12:19 p.m. in Johannesburg from 7.753 before the data was released. The yield on the R153 government bond, due 2010, rose 4 basis points, or 0.04 percentage point, to 11.02 percent.

`Strong Steps'

Governor Tito Mboweni has expressed concern that price pressures are spreading beyond food and fuel in six speeches since the April MPC meeting. The bank expects inflation to stay above the target range until the end of next year.

``We've taken strong steps that will allow us to move back into the target range,'' Mboweni said on May 22. ``The possibility of further strong steps being taken can't be ruled out.'' The inflation ``picture is quite worrying.''

Crude oil has surged 40 percent in New York in the past six months, reaching a record $135.09 a barrel on May 22, while South Africa's government has raised gasoline costs by 27 percent this year.

Inflation expectations are rising. Analysts, businessmen and labor union officials expect CPIX inflation to average 7.8 percent this year, according to a first-quarter survey by the Bureau for Economic Research, based at the University of Stellenbosch. That is up from the 5.9 percent forecast in the fourth quarter.

``South Africa will have to brace itself for a tough wage negotiation season ahead,'' Razia Khan, head of Africa economic research at Standard Chartered Plc in London, said in a note to clients. ``With inflationary pressure set to accelerate further in May, this seals the case for a June rate hike, and highlights the real risk that even more tightening will be needed.''

The headline inflation rate, which includes mortgage costs, rose to 11.1 percent last month from 10.6 percent in March, while core inflation, which excludes mortgage interest and some food items, accelerated to 10.2 percent from 9.8 percent.

To contact the reporters on this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net

Last Updated: May 28, 2008 06:41 EDT