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Neighborhood Economy Watch: Beware Deflation

Los Angeles Garment and Citizen, News Report, Sam Hassan & Staff Posted: Feb 08, 2009

Theres no telling whether our economy has or will slide from recession to depression, but at least one alarming indictor is cropping up on the streets of Los Angeles: Deflation.

It might be tough for a lot of us to wrap our mind around the dangers of deflationa cycle that sees prices of everything from commodities to consumers goods drop. Most of us, after all, have seen inflationa cycle of rising pricesviewed by economists and government officials as a chief evil to ward off.

Deflation can be just as devastating, with the fortunes of everyone from homeowners to large and small businesses stuck in a battle against dipping prices. The cycle tends to build on itself, with the house that a couple bought or the load of meat that the grocer just ordered steadily losing value.

Consider Tim Karmo, manager of the Save A Lot Grocery store in the Echo Park district northwest of Downtown Los Angeles. He recently decided to promote milk on sale, offering two gallons for $6. He saw dramatic drop in the price before he had time to place an ad, though. Its now two gallons for $5. And cheese is on sale at Save A Lot, too. Karmos timing was rightit might have been a different story if he had bought a shipment a milk a day earlier and found himself unable to compete with prices offered by competitors.

Just a mile or so away, at the Jiffy Lube in the Silverlake district, a recent Saturday morning found three service bays and no waitinga rare occurrence, indeed. One of the employees said that a lot of folks are stretching their service calls well beyond the 3,000 miles that Jiffy Lube and other oil-change specialists have done such an effective job in promoting. Deflation is hitting Jiffy Lube, too. A customer who mistakenly brought a $10 coupon for EZ Lube, a competitor with a location just down the street, found the Jiffy Lube manager more than willing to honor the price break. Thats about a 25% discount on the whole joband it cant be a good sign for Jiffy Lube or EZ Lube.

More deflation can be found Downtown, where parking lot owners had enjoyed a steady run of price increases as the area drew new development prior to the recent meltdown. One lot on the edge of the Fashion District went from monthly charges of $60 to $72 to $80 to $88 in the span of 18 months at the peak of the market. The lot recently cut its price back to $80 a month after the rugged holiday sales season, which proved to be the last straw to a lot of owners of garment production shops who had parked there before.

The deflation on parking isnt confined to the Fashion District, either. A few blocks to the west, at 8th and Flower streets in the heart of the Financial District, a relatively new lot has a sign posted offering plenty of space available at $100 a monthanother bargain compared to the going rates just six months ago.

These are anecdotal indicators, each small in its own way. But they might point to a very real and dangerous trend in our economy. Deflation might sound good on the face of itwho doesnt like lower prices? But it has the potential to devastate an economy, leaving business unable to produce goods or offer services at a profit. And we all know that when a company cant make money it doesnt keep employees on the payroll.

How about you? Have you seen signs of deflation in your neighborhood or workplace?

Let us know by contacting L.A. Garment and Citizen at editor@garmentandcitizen.com.

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