inches not moving but weight is going down?

ok, so I have been lifting/training (weights)since February 2013, not really a pro, but ive managed to work threw three difrent programs and noticed, for the most part I lose inches when the scale goes up? I eat at a deficit of 2300-450=1850 a day (on a good day I get all that in while still trying to stabilize that fat intake (that's the one I really go over on) and by watching my sodium levels.
*there is a crap load of salt in EVERYTHING! ! * JUST SAYING!

Any way, im triyng to get rid of fat and eating at a deficit is the way to do it (and lifting also) but how can the body reduce fat while on a deficit and lifting heavy and the scale go down but the inches stay the same? ive went from a US size 11 pants and medium shirt to size 9 pant and small shirt, while losing .5 lb a week but I don't see the inches going any were!

ive been measuring everytwo weeks and the most change ive seen in my hips, (right above the pubic area) 40 inches to 37 (and that's taken 2 months) so that explains a 3 inch drop, but that don't mean that the shirts should fit better>

any advice is welcome, and lets keep this civil... please!