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Differential pulse code modulation (DPCM) is able to code highly correlated sources efficiently at high bit rates but not at low bit-rate regions. Motivated by the rate-distortion theory, a simple modified DPCM codec using multirate processing is proposed. A low-pass filter is used to limit the source signal spectrum according to the optimal mapping scheme. Bit rate reduction is achieved by reducing the number of transmitted samples through downsampling. A Wiener filter is appended at the decoder for further noise reduction. Simulation results agree with theoretical analysis and show that for a first-order autoregressive [AR(1)] process, the proposed codec makes substantial improvements over the classic DPCM and performs close to the rate-distortion bound. The proposed system is then implemented as a low-rate predictive image coder. In addition to apply two-dimensional DPCM, adaptive entropy coding is used to exploit variation in the local statistics of the prediction error image. Simulation results show that the system is able to outperform JPEG at low rates and has subjective quality comparable to that of JPEG2000.