BERLIN, Oct 15 (Reuters) 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 shopping 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. ''Petrol 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 their purchasing power is being eroded.
A rise in the cost of energy and some foodstuffs have 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 suffered 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 indelible 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 per cent in September, a six-year high -- but sharp rises in the cost of everyday items such as butter and petrol have made consumers nervous.
BARGAIN HUNTERS 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 expenditure.
Last month, shoppers at the opening of a discount store in Berlin were so desperate for cut-rate goods that fighting broke out, windows were smashed and a new escalator broken.
A reluctance to splash out remains despite unemployment falling in September for the 18th month running, a recent run of solid pay rises, and a robust economy that enjoyed its strongest growth in six years last year.
The vast majority of Germans feel they are not gaining from the economic recovery, a survey conducted by pollsters Infratest dimap for ARD television on Oct. 1 and Oct. 2 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.
Private consumption contributed 0.6 percentage points to economic growth of 2.9 per cent in Germany last year after making no contribution in 2005. HDE, a retail association, expects barely any growth in the sector this year.
''People see inflation in those highly visible things such as butter or petrol -- that catches their attention and makes them a bit more reluctant to spend money,'' said Holger Schmieding, an economist at Bank of America.
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 per cent. But beyond foodstuffs and petrol, price rises are less pronounced than many shoppers think, economists say.
''This is a completely psychological problem,'' said Stefan Bielmeier at Deutsche Bank.
WELFARE REFORMS Nevertheless, some fundamental issues are leading Germans to save rather than spend money.
With a deeply entrenched property rental culture, Germany has not enjoyed the wealth boost from housing booms seen in the United States, Britain and elsewhere in recent years.
''There is not the real estate flywheel on the German economy -- less than half the population is owner-occupier,'' said Adam Tooze, a senior lecturer in modern European economic history at Cambridge University in Britain.
A ''lagged effect of high unemployment'' -- which reached a postwar high above 5 million in early 2005 -- may also be affecting consumer spending, he added.
Consumer reticence may also be rooted in fears about welfare reforms.
Germany introduced a pensions freeze in 2003 in a bid to cap labour costs and plug holes in benefit funding. Finance Minister Peer Steinbrueck has gone so far as to urge people to give up their vacations and save money for retirement.
Germans saved 10.6 percent of their disposable income last year, compared with a negative personal savings rate in the United States.
''In the medium term they are worrying over their pensions and underneath all of this they are concerned about whether the economy can continue to grow,'' said Deutsche Bank's Bielmeier.
REUTERS SS VC0855