MPG gauge and downshifting

[rooroo]

Hi all!
I have always driven manual trans. cars. My X is my first auto ('03/3.0L).
One thing I always do when slowing/stopping the car is to downshift. Not only do I get some engine braking, but I have faster engine response in case I need to perform an evasive maneuver.
I do this fully aware that I am trading off fuel economy for my driving style.

I noticed that when I downshift and induce engine braking the MPG gauge won't respond to the increased RPMs. It just goes to the left like I am coasting.
I assumed that the gauge responded to the accelerator being depressed and not the actual engine RPMs. But I recently read an article that mentioned that BMW engines are designed to keep fuel injection at a minimum unless the accelerator is depressed. (even when downshifting?)(I'm not a gearhead and probably misunderstood the article)

Is the MPG gauge accurate or am I right to think that downshifting the X5 will use up more fuel even though the gauge won't show it?
(same thing happens on my Mini Coopers)

anyone know?
Rui