President Barack Obama talks with the Weithman family, Rhonda, Joseph, daughter Rachel, 9, and son Josh, 11, in their home in Columbus, Ohio. August 18, 2010.

Fears of deflation have resurfaced  in the US, though the likelihood of such a widespread, prolonged decline in consumer prices remains small unless there's a double-dip recession, according to a report published last week by Standard & Poor's Ratings Services.

The report, "How Severe Is The Threat Of Deflation To The US?" (not available online) says even with unemployment at 9.5% and other economic indicators flashing red, the risk of a second recession is still only 25%.

The latest Consumer Price Index (CPI) paints a picture of very low inflation, but not quite deflation -- yet. The CPI was up just 0.1% in July, excluding food and energy items. Food prices edged down 0.1% in July and are now up only 0.9% from a year earlier after rising sharply in the first quarter. Energy prices are now up 5.2% from last July. The overall CPI is up 1.2% from a year earlier, but the core index is up only 0.9%, slightly below  the Fed's comfort zone of 1% to 2%.

"When you're down below 1% on the core inflation rate, you're not a long way from deflation -- and a double-dip could send us over the edge," says Standard & Poor's chief economist David Wyss. "So a lot of the argument is whether we could be pushed into deflation or are we going to stabilize where we are now. To stabilize the inflation rate where we are now is fine. But going down farther is dangerous."

The S&P expectation is that the US will skirt deflation, but that the low saving rates in the US, still-growing populations, and quick and decisive Federal Reserve moves to expand the money supply can avoid the trap. However, there is a risk that declining home prices, a weak stock market, and inability of banks to lend money could still cause deflation. The odds of such an outcome will increase if other developed countries, especially in Europe, fall  into the same trap.

S&P says as Japan showed, it is very difficult for one country to get out of a deflationary episode. The more countries fall into such a pattern, the harder recovery becomes.

Markets around the world are reacting negatively to growing concerns about the recovery, with Edward Yardeni, Yardeni Research president: