First it was high oil costs. Then it was subprime loans. Now the economy's latest bugaboo is deflation.

Simply put, deflation means prices are falling -- and unexpectedly fast. Why does that have so many Americans fretting and what does it mean for your wallet? Here's a primer on deflation and its potential impact on consumers and investors.

What Is Deflation?

Deflation is a widespread and ongoing decline in prices across the economy. This is different from just a temporary drop in, say, oil prices, which can be good for consumers and businesses. Deflation means prices fall everywhere for a prolonged period of time. That includes prices in the labor market, as in wages and salaries head lower.

The last and only time the U.S. experienced prolonged deflation was during the Great Depression of the 1930s. Japan, the world's No. 2 economy, fell into deflation in the 1990s -- and has yet to convincingly roar back.

Is Deflation Happening Now?

Today, some deflation is a sure possibility as housing and energy costs come back down to earth. In October, consumer prices fell from September levels mainly on sharp declines in energy. But year-over-year, consumer prices were actually up 3.7% in October; excluding food and energy, which are notoriously volatile, prices rose 2.2% year-over-year.

If the economy does indeed fall into an extended deflationary period -- far from a certainty considering inflation was the bigger fear just a few months ago -- there are ways investors and consumers can protect themselves.