While Americans are trying to come to grips with the prospect of double-digit inflation, Israeli economists are discussing the possibility of a triple-digit annual increase in the cost of living here by 1983.
The inflation rate is now 60 percent a year. It could rise to around 100 percent by the fiscal year 1983 if drastic cuts in government spending are not made, Israeli Finance Minister Simcha Ehrlich warned the Cabinet today.
Economist agree that the runaway inflation will be fueled by the high costs of implementing the peace treaty with Egypt and relocating military bases in the Sinai Peninsula. The subject pushed most other business off the agenda as Ehrlich presented a five-year economic program viewed by the finance minister's critics as a tacit admission that spiraling costs have become institutionalized in Israel's economy.
Ehrlich, sounding a gloomy note in the closed Cabinet meeting, is said to have warned the ministers that unless severe limits are placed on public spending, the Likud coalition government of Prime Minister Menachem Begin could be endangered despite its success in foreign policy.
Calling his plan "the necessary minimum" to cut inflation to 30 percent by 1983, Ehrlich proposed a total freeze on public spending, a freeze in civil service jobs, a $175 million cut in the national budget, a crackdown in tax collection, a reduction of subsidies for basic commodities and revaluation of the Israeli pound.
Israel has the highest per-capita foreign debt in the world - the total debt is about even with its $11 billion gross national product. Under Ehrlich's plan, it would drop to about $85 percent of all goods and services produced at home.
The Cabinet made no decisions on Ehrlich's economic plan today, putting off its debate until later this week. All the proposals had been made in one form or another before, most recently in February. Because of the uncertainties of the peace treaty's effects on the economy, however, they were never carried out.
To the average Israeli wage earner fighting to keep place with inflation, the prospect of an annual 100 percent increase in the cost of living is not nearly as incredible as it might sound to Americans.
Per capita income here is low by Western standards - about $3,500 a year - and soaring prices are a familiar phenomenon.
Housing costs take the biggest bite out of a worker's income, largely because of severe shortages of apartments and what Israelis call "villas," which are relatively modest single-family homes.
Because rentals are rare and generally exhorbitant, most couples are forced to buy a condominium apartment, which even in a modestly attractive neighborhood in Jerusalem can cost $125,000 for three rooms. A small - by American standards - three-bedroom house can cost between $300,000 and $400,000.
Because of heavy import duties, imposed in a unsuccessful attempt to hold down private automobile use, a subcompact European car costs $12,000 or more. It is not uncommon to buy a used 1973 Fiat for 150,000 Israeli pounds, or about $6,500.
Gasoline recently went up to about the equivalent of $2.60 a gallon. Average quality beef is $4 a pound, domestic mayonnaise $1.30 a pint, imported cigarettes $1.10 a pack, A simple cotton skirt in a department store costs between $30 and $40, and cheap windup alarm clock costs $17.
On top of these costs, a 12 percent national sales tax is added to the price of most goods and services.
While some basic foods, such as milk and bread, are relatively inexpensive, constant reduction of government subsidies is beginning to drive up their prices.
At first brush, the cost spiral seems to defy an explanation of how middle class Israelis survive financially, particularly given the 50 percent tax imposed on many middle class couples. Nearly 40 percent of Israel's budget goes for military spending and even peace with Egypt is not expected to change that proportion. A fifth of Israel's gross national product is spent on defense.
But there are a number of commonly accepted arrangements that traditionally have softened the disparity between wages and prices.
Many Israeli couples receive assistance from their parents in buying an apartment, and the banks are almost as accommodating as the mothers and fathers. Down payments can be small, interest low and payment terms flexible. Since the paychecks of many Israelis are automatically deposited in checking accounts by employers, the banks have adopted a lenient overdraft policy and even missing a mortgage payment is not catastrophic.
Credit purchases for everyday shopping are a way of keeping up with inflation. Most Israelis know that buying at today's prices and rolling over the debt is a convenient way of avoiding tomorrow's prices.
Some workers, to counter frequent devaluation of the Israeli pound, regularly change their paychecks into U.S. dollars or West German deutschemarks. The currency exchange rate, now about 23.1 Israeli pounds to the dollar, is expected to be 75 to the dollar in five years, some economists say.
Many public and private employes receive under-the-table perquisites, such as the use of an automobile, paid telephone bills or other inducements, to get around wage controls. Employes of a utility company, for example, may have their electricity bills written off, thereby reducing their personal costs.
Another way around inflation is moonlighting. Given Israel's chronic manpower shortage, twin jobs are commonplace. It is rare to find a middle class Israeli wife who does not work.
Another way around inflation - to the embarrassment of the government - is tax dodging, particularly among self-employed Israelis. As a young state, Israel has not developed a tradition of revenue collection. A newcomer quickly learns that paying cash without requesting a written receipt is a welcome gesture.