While economists had been expecting U.S. inflation to climb by 0.2% in July, the U.S. Department of Labor said Tuesday that inflation fell by 0.1% in July -- the first monthly decline since late 2003.

The decline in inflation for July was blamed on lower gasoline prices and lower prices for clothing, recreation, and education costs. Even if we take out the volatile gas prices, the core inflation rate was flat.

No matter where I look for news and analysis on the inflation figures, I've only found positive responses in the popular media. Most reports were on how "inflation was under control" in the U.S.

But what I didn't see anyone talking about was the deflation implication of the Consumer Price Index (more popularly known as the CPI). Am I the only one worried about deflation? Seems so. But wait, I'm sure Alan Greenspan has the dreaded fear of deflation in the back of his mind too. And I'm sure he hopes no one is talking about it.

Prices are falling because consumers are accessing cheaper goods via imports. Our trade numbers tell us flat-out that American consumers are buying imported manufactured goods at record levels.

The stock market is deflating. Really, any good service or investment that is declining in price is deflational. The million- dollar question: What will happen when real estate starts to deflate?

Japan experienced deflation for many years, and it certainly wasn't pleasant. That's because assets decline in value while debt increases.

Take the couple that buys a house for $250,000 with $25,000 down. Their mortgage is $225,000, and they hope to see their house rise in value 5% to 10% a year so their asset is growing in value while their debt is constant. Imagine their state of mind if the house falls in price 5% to 10% -- their asset is declining in value while their debt remains constant. History has shown us consumer spending comes to a screeching halt during deflationary times.

When deflation took hold in Japan, interest rates plummeted as the Bank of Japan tried to get consumers to spend again in the hope higher demand for goods would bring back inflation and rising asset prices. We all know it took years for Japan to come out of deflation. And we also know our bond market pricing is now indicative of easing interest rate hikes by the Fed. I believe the market is actually building deflation into the price of bonds. Not a comfortable thought.