of more moderate rises in food and energy prices, which had shown exceptionally large increases in 2000. more fundamentally, the slowdown in inflation was related to the moderate rise in unit labour costs over the past two years. in our monetary policy committee statement we noted that with continued fiscal and monetary discipline, the target range of inflation in the year 2002 was achievable. the rate of imported inflation in production prices has declined from 15 per cent year - on - year in december to 11, 8 per cent in may. inflation in domestically produced goods slowed from a year - on - year rate of 8 per cent in november 2000 to 7, 5 per cent in may. this was largely because of declining food prices which had a positive impact. similarly, the headline cpi accelerated from 1, 7 per cent in october 1999 to 7, 8 per cent in february 2001 but declined to 6, 4 per cent year on year in may. although we remain reasonably confident of meeting our inflation target, we nonetheless remain vigilant. there are some forces at work that may obstruct the gradual decline we have witnessed up until now. these include the faster growth in aggregate demand over output, uncertainties about the stability of the oil price, and possible delayed second - round effects from the rand ’ s depreciation of last year. although the rand depreciated by 1, 3 per cent during the first quarter of this year, it appreciated by 1, 2 per cent against the basket of currencies during the second quarter. against the dollar the rand depreciated by 5, 9 per cent in the first quarter. however, during the second quarter, the rand depreciated against the dollar by only 0, 6 per cent. 5. exchange rate of the rand having declined from a level of about r7, 50 against the us dollar early in january 2001 to levels around r8, 00 at the end of may, the rand seemed to stabilise against the us dollar in june. the monthly average exchange rate of the rand against the dollar in june 2001 was r8, 05. however, from 3 july 2001 the rand weakened against the us dollar to a level of r8, 2403 on 9 july reaching an all time low of r8, 2456 in intra - day trading. subsequently the rand declined further to a level of r8, 34 on 11 july 2001. since the beginning of the year, the rand has depreciated by about

##ised rate of 6 per cent in the first quarter, coming off a high base. although mining output rose slightly, this was not near the levels seen at the beginning of 2000. demand for platinum and coal remained firm but diamond stockpiling continued in the face of weaker demand. of some worry is that the sector that bore the brunt of the slowdown was the manufacturing sector. the growth rate in this sector slowed down from an annualised 4, 5 per cent in the fourth quarter to a mere 1 per cent in the first quarter. this is somewhat puzzling because there appears to be strong demand for manufactured goods. domestic demand remained strong in the first quarter with household and government consumption expenditure rising. however, the growth in real fixed capital formation and inventory investment accelerated. however, it was net inventory investment which slowed down the growth in aggregate spending in the fourth quarter of 2000. an acceleration in inventory levels followed in the first quarter of 2001. this suggests that producers are positive about south africa ’ s future growth prospects and anticipate an increase in domestic demand. household spending was still holding firm in the first quarter of 2001. real final consumption expenditure by households increased at a quarter - on - quarter seasonally adjusted and annualised rate of 3 per cent in the first quarter, slightly lower than the 3, 5 per cent recorded for the fourth quarter of 2000. the weakness was mainly due to a slowdown in spending on services other than communications services. a rise of 28 % in the purchase of cellular telephones over the past year was not enough to cushion this. the real gross fixed capital formation accelerated steadily in the 12 months to the first quarter. the private and general government sector registered high fixed capital formation but there was a decline in the public corporations sector. the private sector continued to expand communication infrastructure. general government also increased their outlays on infrastructure spending, although from a very low base. total fixed capital formation amounted to approximately 15, 5 per cent of gdp in the first quarter. 3. employment and labour remuneration south africa is labouring under a scenario of low growth that appears insufficient to create the levels of employment we would like to see. however, it must be remembered that a drop in formal unemployment does not necessarily imply an equal rise in the number of the unemployed. often those who are no longer employed in the formal sectors of the economy enter the informal sectors or become self - employed. from 1999 to 2000, employment fell in the formal private and public non -