ANALYSIS - Inflation memories run deep at central banks

Inflation, therefore, has long been seen as Europe's bogeyman, as hyperinflation in the 1920s financially ruined the middle class in Germany, its largest economy.

But as with U.S. policy-makers, that explanation ignores the personal experiences of European policy-makers.

In recent speeches by European Central Bank and Bundesbank policymakers, only two, including one by ECB president Jean-Claude Trichet, talked of the German scars of hyperinflation in the 1920s.

Instead, European policy-makers have recently mentioned the 1970s significantly more often than hyperinflation or the Great Depression.

Juergen von Hagen, a University of Bonn economics professor said that since there is no threat of hyperinflation today, the lessons of the 1970s loom larger for the monetary policy makers.

"Germans being afraid of hyperinflation is a popular argument outside of Germany, but there is not much truth to it, I think. Hyperinflation does not feature in the economic discussion in Germany," he said.

Nevertheless, inflation-fighting credentials are paramount for policy-makers in Europe. The current head of the European Central Bank, Jean-Claude Trichet, earned his inflation fighting bona fides in the 1990s as French central bank head, when he kept French inflation below 2.0 percent, and at the ECB he has resisted calls from politicians for lower rates.

(Additional reporting by Ros Krasny in Coeur d'Alene, Idaho)