Behind the Headlines Living with Inflation

As the Hebrew calendar year 5744 nears its end, how does Mr. Middle Class Israeli stand financially? How do he and his family and friends cope with inflation racing at an annual rate of over 400 percent?

Mr. MCI will end the year bearing a $5,000 share of his country’s $23 billion foreign debt; so will his wife, each of his children and grandchildren. The debt — and the individual’s share — is sure to increase in the foreseeable future and may fall on Mr. MCI’s yet unborn great grandchildren.

Is he worried? Perhaps, though it is difficult to conceptualize a debt of astronomical proportions relative to a country the size of Israel. Is he discontented? Not really. Though many economic experts say Israel is on the verge of bankruptcy, Mr. MCI seems quite satisfied with his condition. And why not?

He bought a new car this year. He is planning to move into a four-bedroom flat. Recently, he refurnished his living room and completed his collections of the Hebrew Encyclopedia. Two of his three children spent the summer at an expensive sleep-away camp. Each owns a bicycle.

Last year, Mr. MCI travelled abroad twice; once with his wife for two weeks on a Greek island. The second time was on a mission he arranged for himself to the United States, which paid his fare.

THE ANACHRONISM OF SHEKELS

On top of this, Mr. MCI fattened his bank account by $5,000 during the past year. Why Dollars? Because nobody saves Shekels anymore. Israel, as MCI well knows, is possibly the only country in the world where the more local currency you save the more money you lose. With galloping inflation, the Shekel loses value at a rate of about one percent a day. The smart thing to do is get rid of your Shekels as fast as you can.

Mr. MCI therefore puts his savings in Dollar-linked accounts. There were frightening rumors before the elections last July that the government had no alternative but to seize those Dollar accounts to stabilize the economy. So Mr. MCI took no chances. He began to purchase Dollar bills on the black market. He paid only slightly more than the official exchange rate. But he knows he possesses the real Green.

He no longer calculates in Shekels because he can never know what the price of any product will be from week to week. Suppose he stored the price of milk in his memory — 105 Shekels (about 30 cents) a liter. He would have to remember a new price in two weeks or sooner.

He hardly pays attention anymore to the government’s frequent announcements that the controlled price of basic commodities and petrol is going up. He knows that the value of his present three-bedroom flat is about $70,000. To figure its worth in Shekels he would need a calculator.

When he shopped for his new car recently he was not surprised to find the sticker price in Dollars. He went to a dime store last week to buy himself a pocket diary. It too was priced in Dollars — $2.50 to be exact.

The key to Mr. MCI’s confidence is that wonderful device, the cost-of-living (C.O.L.) index which links his wages to general price hikes. To be sure, the linkage covers only 80 percent of the C.O.L. rise and is taxable. But with the aid of a strike here, a work stoppage there, he knows the gap will be narrowed.

Using his pocket calculator, Mr. MCI found that his July salary was the equivalent of about $1,000, up from $600-$700 in earlier months. By the time he received his August salary he found he could buy fewer Dollars with the Shekels he received. This worried him, for the first time. Moreover, the experts are now saying the economic situation is really serious and crisis is just around the corner.

Mr. MCI wonders what this will mean for him, personally. As a senior clerk in a government office he enjoys a benefit quite exclusive to Israel–job security. Budgets may shrink but Mr. MCI cannot be sacked unless he is caught in a criminal offense.

A FEAR OF SOCIAL UNREST

He is well aware, however, that unemployment is on the rise, a new phenomenon for Israel. Workers are being fired, especially temporary manual laborers.

Mr. MCI’s father-in-law owns an electrical appliance store. He is starting to complain that sales have dropped. Business is falling, unemployment is rising. In the back of MCI’s mind there is a gnawing fear of social unrest. He does not want to see the social gap widened. He does not want to see all those Arab day laborers from the West Bank walking the streets without jobs, thinking possibly, how to blow up Jews.

Mr. MCI wants peace and quiet. He wants stability. For that cause he is ready to sacrifice a little — not too much. Perhaps he will forego his annual trip to Europe.

Because he begins to realize that the economic situation is very bad and that economic hardships may be imminent, Mr. MCI intends to have a last fling. He will spend the High Holidays on the French Riviera. After that, he will tighten his belt.