German Inflation Causes Bad Memories

BERLIN -- Julia Sonnenberg peruses the latest bestsellers at a bookstore in central Berlin but cannot bring herself to buy one.

"I am here to window-shop, not really to spend," the 40-year-old travel agent said as she exited the store in a mall one Saturday afternoon last month.

Claudia Mueller, 39, who works in a recruitment agency, is waiting for a friend who is having a manicure, but she didn't have one herself. "Gasoline is much more expensive, and I am being more careful with my money these days," she said.

Like many Germans, Sonnenberg and Mueller worry about rising prices and feel that their purchasing power is being eroded. A rise in the cost of energy and some foodstuffs has pushed up inflation, overshadowing other economic news like a fall in unemployment to 14-year lows and salary increases after years of wage restraint.

For some, the German fear of inflation is a legacy of the hyperinflation between the two world wars, when a wheelbarrow full of money was needed to pay for a loaf of bread. This, and a later bout of inflation that ended in 1948, left an impression on the country.

"The German psyche is still scarred by the folk memory of the two great inflations of the 20th century," said Harold James, a history professor at Princeton University.

"It's clearly not something [many] have experienced, it was their parents or grandparents that did -- but there is always a folk memory."

Inflation is far from rampant -- the national measure rose to 2.7 percent in September, a six-year high -- but sharp rises in the cost of everyday items such as butter and gasoline have made consumers nervous.

Faced with the rising cost of goods, Germans are burnishing their reputation as a nation of bargain hunters as they try to hold down their overall household costs.

Last month, shoppers at the opening of a discount store in Berlin were so desperate for discount goods that fighting broke out, windows were smashed and a new escalator was broken.

A reluctance to spend remains -- despite unemployment falling in September for the 18th month running, a recent run of solid pay rises, and a robust economy that last year enjoyed its strongest growth in six years.

The vast majority of Germans feel that they are not gaining from the economic recovery, a survey conducted by pollsters Infratest dimap for ARD television earlier this month showed.

The angst over inflation is holding back a rise in consumer spending at a crucial time for Europe's largest economy. Economists are banking on domestic consumption to make up for a drop in exports caused by weaker growth abroad and a surging euro currency.

The cost of bread has increased in Germany after wheat prices more than doubled in most parts of the world due to poor harvests in key producer countries, leaving stocks at their lowest level in over 25 years.

In Germany, milk and butter prices have also climbed by around 50 percent. But beyond foodstuffs and gasoline, price rises are less pronounced than many shoppers think, economists say.

"This is a completely psychological problem," said Stefan Bielmeier at Deutsche Bank.