The PPI for Dec 2008 is lower than it was in Dec 2007. The CPI probably will probably finish 2008 like that too (tomorrow we'll know more). Thus, for the 12 months of 2008, prices fell overall even while real incomes increased. A rare phenomenon indeed!
[It is forecasted that 2008 Q4 real GDP will be lower than 2008 Q3. But nobody claims that real incomes in December 2008 were lower than real incomes in December 2007, because the economy was growing for the first half of 2008]