Price Statistical Outlook: Inflation is Coming, How Should Investors Prepare?

Understanding “Inflation” and How to Protect Your Investments

If you notice that the money in your wallet is gradually losing value, food prices are rising, and oil prices are skyrocketing, that’s the result of (Inflation) gradually eroding our purchasing power every day. This is not unusual or cause for panic because inflation occurs in all economies. The key is how we respond to it.

In general inflation, the prices of goods and services tend to increase constantly, resulting in the same amount of money buying fewer items over time. For example, a prime minister who once had 50 baht could buy many bowls of rice, but now the same amount only buys one bowl. Ten years from now, that money might buy less than a bowl of rice.

For investors, inflation is not just an economic phenomenon to worry about but also a crucial signal for market decisions. Typically, when inflation rises, governments adjust policies to cope, which affects stock prices, interest rates, and investment opportunities.

What Causes Inflation? Reasons You Should Know

###Demand exceeds supply

When the economy recovers after a crisis, consumers start spending more. The phenomenon called “revenge spending” occurs, where people decide to use their savings to compensate for reduced spending during economic downturns. However, producers cannot expand production quickly enough to meet demand. Coupled with shortages of containers, semiconductors, metals, and natural gas, production costs soar sharply.

###Rising production costs: impacts from war and shortages

Global prices for crude oil, coal, iron, and copper surge to record highs. Events like the Russia-Ukraine war and production cuts by oil-exporting countries are main factors. During the COVID-19 pandemic, crude oil prices plummeted to historic lows, but as countries reopened, prices soared due to supply disruptions.

###Government creates more money

Sometimes inflation results from loose monetary policies when governments or central banks print more money into the system. The money supply increases, but goods do not, leading to “Printing Money Inflation,” which is dangerous to the economy.

Global Inflation: Current Situation and Trends

According to IMF reports in January 2024, the global economy is expected to grow at 3.1% this year and 3.2% next year, slightly higher than previous forecasts due to the resilience of the United States. However, growth remains below the historical average because of tight monetary policies.

Signs of decreasing inflation (deflation pressure) are beginning to appear, but risks remain from geopolitical tensions. Currently, many economies are approaching Stagflation—a mix of high inflation and sluggish growth—which is the worst scenario for the public.

Causes of Thai Inflation: Data from the Consumer Price Index (CPI)

The Consumer Price Index (CPI), calculated monthly by the Ministry of Commerce, tracks 430 items.

In January 2024, Thailand’s CPI was 110.3, up 0.3% year-on-year compared to January 2023 at 108.18. The overall inflation rate decreased by 1.11%, marking the fourth consecutive month of decline and the lowest in 35 months.

###Understanding Price Changes is Essential

From the table, it’s clear that fluctuations in food and energy prices are the main drivers of inflation.

Benefiting from Inflation: Case Study of PTT Public Company Limited (Public)

A clear example of who benefits from inflation is entrepreneurs, traders, and banks, while salaried employees are at a disadvantage because their wages increase at a slower rate than inflation.

PTT Public Company Limited (Public) is a key example. In the first half of 2023, the company and its regional partners earned 1,685,419 million THB with a net profit of 64,419 million THB, up 12.7% year-on-year. The profit from PTT’s operations accounted for 24% of the group, mainly driven by the surge in global oil prices during that period.

Inflation vs. Deflation: The Difference Every Investor Must Know

(Inflation) is a condition where prices of goods and services continuously rise, reducing the value of money.

(Deflation) is the opposite—prices fall, demand shrinks, and the money supply is insufficient. Deflation occurs when the economy slows down or enters recession, leading consumers to cut spending, producers to reduce output, unemployment to rise, and the economy to get stuck in a high-unemployment, low-growth cycle.

Both conditions should be avoided when severe, as they harm economic growth and quality of life.

Who Benefits and Who Loses During Inflation

###Beneficiaries

✅ Business owners and entrepreneurs can raise prices, increase profits, and expand their businesses.

✅ Shareholders and banks benefit because stock prices rise and loan interest rates yield higher returns.

✅ Debtors benefit because the real value of their debt decreases, making repayment easier.

###❌ Salaried employees are at a disadvantage because wages increase slowly while the cost of living rises rapidly.

❌ Lenders and savers lose because the value of their stored money diminishes daily.

How Inflation Affects Us: Daily Life and Business

###Impact on the General Public

Cost of living rises, purchasing power declines: As prices increase, employees spend most of their wages on essentials, leaving little for savings and investments.

Long-term unemployment may rise: If inflation gets too high, companies cut production and lay off workers due to decreased demand.

###Impact on Entrepreneurs

Selling becomes difficult, but costs are high: Rising prices mean consumers buy less, profits shrink, companies cut investments and reduce staff, leading to economic downturns.

###Impact on the Country

Long-term development slows: Investors reduce long-term investments in machinery and projects due to economic uncertainty, hindering growth.

Asset bubbles: When interest rates are truly low or negative (negative), people speculate in risky assets like stocks and real estate, creating bubbles.

How to Protect Yourself from Inflation: Investor Strategies

1. Shift from Saving to Investing

Low interest rates on deposits during inflation cause your money to lose value. Protect by investing in high-yield assets such as stocks, mutual funds, or real estate.

2. Avoid Unnecessary Debt

Be cautious about taking on consumer debt for consumption. During high inflation, loan interest rates also rise. Reduce unnecessary purchases.

3. Follow Economic News

Inflation signals central banks to adjust policies. When policies change, asset prices also change. Staying informed is crucial.

What to Invest in During Inflation

Bank Stocks

Banks benefit from higher interest rates on loans. When inflation rises, central banks raise rates, widening the net interest margin and boosting bank profits.

Gold

Gold moves in tandem with inflation. The higher inflation, the higher gold prices. Gold is an asset with intrinsic value that does not depreciate over time. Long-term gold investment is an effective hedge.

Real Estate and REITs

Rental rates tend to adjust with inflation because property owners can raise rents, increasing returns during high inflation.

Food and Energy Stocks

These essential goods give companies pricing power. When costs rise, companies can pass on the increased costs to consumers.

Floating Rate Bonds or Inflation-Linked Bonds

These bonds adjust interest payments according to inflation, making them suitable hedges.

CFD Gold Trading (Contracts for Difference)

Investors can speculate on both rising and falling gold prices without owning the physical gold.

Summary: Investors Must Understand Inflation and Deflation

Inflation has two sides. One promotes economic growth and reduces unemployment, but excessive inflation harms low-income earners. When inflation becomes too high, it’s called “Hyperinflation,” or Hyperinflation. Conversely, deflation involves falling prices, shrinking demand, and economic deadlock.

Investors should monitor changes in inflation and deflation because both influence investment choices, strategies, and market opportunities. With good planning, appropriate asset allocation, and constant awareness of news, you can navigate through the storm of inflation and turn the tide in your favor.