PORTLAND, Ore. -- After months of inflation prices are starting to drop. So what's not to like about that? Well the economy for one.

Ask anyone trying to sell their home, or manufacturers trying to keep their workforce busy as consumer demand drops. Now deflation is the new worry for an already economy trying to come up for air.

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Oregon's hourly minimum wage goes up 25 cents Jan. 1 to $7.50, making it the second-highest in the nation after Washington's.

Everyone knows first hand the effect of inflation. Remember this summer. Gasoline topping $4 a gallon.

And at the grocery store, the price of corn raised the cost of just about everything. Now just four months later with falling demand and consumers pulling back the nation is faced with deflation. This happens when there's a recurring decline

in over all prices. And that, the experts say can hurt the economy even more. It can lead to increased unemployment as companies scale back on production output.

"It's really hard on our economy" said Portland State University professor Raymond Johnson. He says in the long term deflation is harder to reverse. "Prior to deflation you have people who have invested in dollars in assets that they own that turn out to be worth less" he said. And real estate is a prime example.

"My house has gone down in value, and I'm selling it right now, it's been a bad thing" said Cathy Tappel from Portland.

The trickle down effect hits retailers who sell to home buyers. It's brought on a lack of confidence for the consumer.

This month bringing the consumer price index, a gage of how much more or less we have to spend, down one percent.

This is the biggest drop since the index started in 1947.

"Over a one month period,that's a huge drop" said Mark Champion a financial analyst with Piper Jaffary Securities. Mark says the consumer is clearly in the drivers to try and pull the economy out of this ditch. "It's always come back to the consumer, and when consumers get a cold, the economy gets the flu".

And now it's a game of chicken as shoppers wait to see how far prices will fall before they open their wallets. This as the all important holiday shopping season is here.

"Demand is dropping, consumers are buying less. And it puts a lot of retailers at risk for lower sales and potentially bankruptcy" said Champion.