Answering my own question after getting in touch with customer service.
tl;dr: The infant is on the same ticket as one of the adults. This results in fewer characters being available to print on the ticket. Hence the name shortening. According to the airline, this will not pose a problem with airport security.
Long answer: we actually cancelled our booking ...
I doubt that there is a way to answer this question definitively one way or the other, but I can give you some first-hand experience:
I once flew internationally from the US to the UK on Virgin Atlantic on a ticket booked through a travel agent. The travel agent made a mistake with my name so that they replaced the last letter of my first name with the first ...
I don't have any first hand experience with this, at least not recently, but I doubt they would be very picky with a child. I also doubt Lufthansa would do this if the German airport authorities were very picky about it.
I say "not recently" because twenty years ago this was common practice for some airlines, even for adults.