Inflation in Israel soared to the four-digit level last month, reaching an annual rate of 1,260 percent, the government's Central Bureau of Statistics reported today.

The bureau said the consumer price index for October rose by a record 24.3 percent, which, if compounded over 12 months, represents a yearly inflation rate of 1,260 percent. The previous record rise in the price index was 21.4 percent, set in September.

During the first 10 months of 1984, consumer prices have increased by almost 340 percent, the bureau reported. The inflation rate for the full year is expected to be about 500 percent.

The record rise in prices last month had been widely expected. Prices in October were not affected by the three-month freeze on wages and prices reached by the government, labor unions and business that was implemented Nov. 5.

The first test of the effectiveness of the government's program to stem inflation will come with the publication on Dec. 15 of the consumer price index for November.

Under the agreement freezing wages and prices, Israeli workers will give up one-third of the cost-of-living pay increase they would normally be entitled to this month, based on the October rise in prices.

The combination of the raging inflation and a slowdown in the cost-of-living pay raises that Israelis have come to expect to cushion them from the impact of higher prices is expected to deepen public despondency over the near-term economic prospects here. Predictions of social unrest are becoming more commonplace.

Israeli radio quoted Prime Minister Shimon Peres as denying reports that mass firings of public employes are planned as part of the government's austerity program.