2003 marks first year of deflation in Israel's history

For the first time in the history of the state, the
consumer price index for a full year was
negative. December CPI was -0.2 percent,
ending a year that recorded -1.9 percent.
Economic ministries in Jerusalem believe
central bank governor David Klein will lower
interest rates by 0.3-0.4 percentage points next
month.

Until last year, the lowest CPI in Israeli
economic history was in 2000, when inflation
was zero. It is extremely rare for Western state
economies to register negative CPIs.

Several factors contributed to the figure, the
most important being the decline in demand
because of the recession, high unemployment,
and the drop in public sector pay.

Also contributing to the negative CPI was the
central bank's monetary policy, which has kept
interest rates relatively high in real terms,
designed to keep inflation down, even as
demand sinks.

Haaretz