Jerusalem, 1 February 2000
Bank of Israel Submits 1999 Inflation Report
(Communicated by Bank of Israel Spokesman)
Bank of Israel Governor David Klein today (Tuesday) 1.2.2000,
submitted to the government, Knesset and public, the inflation report
for the second half of 1999, prepared by the Bank's monetary forum.
Prices rose by 3.4% in annual terms in the second half of 1999, and
the economy reverted to the price increases similar to those between
the end of 1997 and August 1998, before the global financial crises.
Due to the steps the Bank took as a result of the crises in order to
prevent breaching the government's 1999 inflation target of 4%,
inflation in the first half of 1999 was 1.3%. This rate did not
reflect the long-range inflationary environment, beyond any particular
calendar year. The inflationary environment in the second half of 1999
was generally higher than the 3-4% annual inflation target for the
years 2000-1. The expected rate of inflation is now expected to be
about 3% -- closer than in the past to the level defined as "price
stability", i.e. the level of inflation in developed countries.
The challenge now facing monetary policy is to consolidate the
processes to achieve the government's inflation target for the next
two years against the inflationary risks in the financial area. This
requires gradual and sustained policies and decision-making for the
economy, including: Maintaining the multi-year inflation targets over
the next two years; amending the Bank of Israel Law in accordance with
the recommendations of the Levin Commission report; completing the
liberalization of the foreign currency market; reducing the weight of
the CPI-linked government debt; setting taxation regulations and tax
reform so as not to include linkage; ending linkage-based prices,
contracts and wage agreements; setting accountancy rules appropriate
to a low inflationary environment; and increasing the weight of
unlinked stocks and Shekel assets - especially long-term - in the
public's asset portfolios.
Inflationary risks include the rising trend in global interest rates,
rapid and unexpected changes in international financial markets and
rapid changes in public asset portfolios arising from rapid
fluctuations in exchange rates.