Israel welcomes lowest inflation rate in 30-plus years

"What we had in 1999 was a very special combination of one-time factors coming together all at once," Bufman said.

Jonathan Katz, chief economist at Nessuah Zannex Securities, said that despite expectations for a higher pace of inflation in 2000, core inflation remains very low.

Core inflation, which excludes the impact of housing, clothing and fresh produce prices, was just 1.2 percent last year, even lower than the overall consumer price index.

The 1999 consumer price index was kept low first and foremost by housing prices, which fell 0.9 percent over the course of the year. Clothing prices, which account for a much smaller portion of the index, fell 4 percent, and prices of furniture and household items dropped by 1.4 percent. Transportation and communication prices rose only 0.8 percent.

Fresh produce prices, always a volatile part of the consumer price index, jumped 6.5 percent.

Overall food prices rose 2.9 percent, health costs by 4.9 percent, and education, entertainment and culture by 3.3 percent.

Katz, who said he would probably cut his 2000 inflation outlook to 3.5 percent from an earlier 4 percent projection, said that growing inflation calls for a new round of interest rate cuts, probably of about 0.5 percentage point. The Bank of Israel's base rate is currently 10.7 percent.

Last week's appointment of David Klein as Bank of Israel governor would not affect a rate cut, Katz said.