The economic expansion is slowing as it approaches its second anniversary, but it is continuing and inflation is showing no signs of accelerating, according to two government reports released yesterday.

On the inflation front, producer prices for finished goods fell 0.2 percent in September as both energy and consumer food prices declined, the Labor Department said.

At the same time, retail sales rose a strong 1.6 percent, the first increase in three months, the Commerce Department said. However, the seasonally adjusted increase still left sales only slightly higher than they were in May, underscoring the slower growth of economic activity since mid-year.

"Shoppers can continue to expect their dollars to go further," White House spokesman Larry Speakes said.

"Both a decrease in inflation and an increase in sales point the way towards a strong and growing economy in the months ahead -- and this will be growth with low inflation," he said.

The second consecutive drop in finished goods prices may also reflect, in part, the less rapid pace of the expansion, analysts said. Whatever the precise reasons, the price index for finished goods is up only 1.6 percent in the last 12 months.

Consumer food prices fell 0.4 percent in September but were up 4 percent for the 12-month period. Consumer energy prices went down another 1.1 percent, making the decline 7.5 percent for the year. Other consumer goods prices went down 0.6 percent last month but were still up 3 percent since September 1983.

The retail sales increase eased concerns of a few economists that the economic expansion might be on the verge of ending. Major retailers still expect to have a strong Christmas season, but what will happen after that is less clear.

Noted one Wall Street analyst, "There is just not the pattern of consistent strength in sales we saw earlier in the year. The question is not just Christmas but what happens after Christmas."

Adding up all the cross-currents in the economy, he said, leaves him convinced that demand is still growing but that it is "increasingly being met by foreign production. . . . I can no longer feel that we can get through the next 12 months without at least one down quarter" in terms of the gross national product.

Many other forecasters have begun to mark down their expectations of growth both for the current quarter and for 1985. Some think real output will be up no more than at a 2 percent annual rate this quarter, though most are still looking for growth close to the 3.6 percent rate estimated by the Commerce Department for the third quarter on the basis of highly tentative data.

Commerce said that retail sales rose to $108.5 billion last month, up from a revised $106.8 billion in August. Sales fell 1.7 percent in July and 0.6 percent in August, according to the revised figures.

Sales of durable goods increased 0.6 percent, including a 1.3 percent gain for the automotive group. Sales of building supply dealers and furniture stores showed small declines for the month.

Sales of nondurables went up 2.1 percent as sales volume at food and apparel stores both rose strongly. Interestingly, sales of gasoline outlets increased 2.8 percent "largely due to firmer prices at the pump," the department said.

This is not necessarily at odds with the decline in energy prices shown in the finished goods price index. Energy prices are entered into the index with a one-month lag.