Economists also noted as another indicator yesterday’s recorded 2.8 percent decline in wholesale prices – the biggest decline measured since over the past year.

While consumer prices are still 3.7 percent higher than they were in October 2007, experts still fear that overall business in the nation will suffer, as consumers actively seek lower prices in goods and services. As About.com writer Darrell Zahorsky wrote , deflation is “great news for holiday shoppers … but bad news for business profits in price dropping sectors.”

This year’s shoppers are already accustomed to seeing red-line prices, from even the biggest retailers. Many are waiting till the holidays draw closer for even greater discounts, which could amount to even smaller profit margins for retailers and a spiraling economic downturn.

During a deflation, any inclination toward borrowing and lending also dissipates. Consumers and business may even suffer from debt deflation – when its cost is driven up by falling interest rates and drying-up credit.

“Consumers [sic] recent reluctance to spend and borrow coupled with the banks ever tightening credit regulations are exacerbating the problem,” wrote Zachary Oxman, Wisdom Financial broker, in Seeking Alpha .

A Bloomberg News survey forecasted a 0.8 percent decline in consumer prices. Today, the news source recognizes a push from international leaders for an increase in government spending, as they observe a loss in customer spending power and a global economic downturn.

Meanwhile, The New York Times has observed increasing scrutiny of President-elect Barack Obama and his plans to stimulate the economy. For $5 billion, Obama proposes to expand the Small Business Administration’s Disaster Loan Program, by increasing the guarantee rate of private loans, in addition to temporarily eliminating fees for borrowers and lenders.

Prices fell by 0.4 percent in September, following a 0.9 percent decrease the previous month. They are still 8.7 percent higher than they were in September 2007, as the Bureau of Labor Statistics reported last week.

The two-month drop in wholesale prices – collectively referred to as the producer price index – follows a 1.2 percent month-to-month increase and a 9.8 percent rise from July 2007, that being the sharpest increase since a 10.4 percent jump in June 1981.

Energy prices continued to decline as well, by a total of 7.5 percent over the past two months. While this has helped ease economists worrying about inflation, they cannot claim overall financial stability with the current state of wholesale prices.

Without food and energy prices factored in, the producer price index of finished wholesale goods still rose by 0.4 percent in September – a “good news, bad news story” as stated by Peter Morici, University of Maryland international business professor and Seeking Alpha contributor.

“That indicates that we have yet to see moderation in what businesses charge at a wholesale level,” he said in a phone interview.

Some wholesale prices of finished goods – including that of women’s, girls’ and infants’ apparel; plus office and store machines and equipment – fell after rising in August. But the prices of finished consumer foods continued to increase by 0.2 percent, after rising 0.3 percent in August. Those declines also accompany a 15.4 percent rise in prices of intermediate goods as received by manufacturers, according to the report.

And while those producers may have noted a change in their prices, consumers did not see much change at all. In fact, the consumer price index, or the change in prices as seen by households, was “virtually unchanged in September,” after just a 0.1 percent decrease in August, the Bureau stated. This follows a 1.1 percent overall rise in June, which included a 3.8 percent increase in transportation prices and a 6.6 percent increase in energy prices.

Morici had predicted for September a 0.2 percent decline. Now he expects more of the same moderate pricing in the future – “more tepid increases, or maybe decreases in wholesale prices through the end of the year.”