Prices keep soaring. Why is our economy like this? Understand inflation clearly.

In recent years, the reality we can truly feel is that prices of goods are continuously rising. Meat, energy, fresh vegetables, eggs—all are moving in the same direction. This change is not coincidental but a result of an economic phenomenon called “inflation,” which investors and everyone need to understand in order to plan their finances effectively.

The Origin of Rising Prices

Inflation is a condition where the prices of goods and services tend to increase, which can also be described as the value of money decreasing over time. Customers have to pay more to buy the same goods. This is happening in many countries around the world, including Thailand.

A simple example is that 10 years ago, Mr. Tang could buy many bowls of rice with 50 baht, but today, that same 50 baht only buys one bowl. In another 10 years, the same amount of money might only buy half a bowl. This is the power of inflation affecting our purchasing power every day.

What Causes Inflation?

Data from the Bank of Thailand and the Office of Trade Policy and Strategy show that inflation occurs due to three main factors:

First is demand-pull inflation, where demand for goods exceeds supply. When the global economy recovers, consumers have higher purchasing power, but producers cannot keep up. As a result, sellers raise prices.

Second is rising production costs, such as crude oil, natural gas, steel, and copper prices soaring in global markets. Producers bear increased expenses and must adjust their prices accordingly. Ongoing chip shortages and transportation delays remain significant obstacles.

Third is government monetary policy, where excessive money supply in the economy leads to Printing Money Inflation.

Data from January 2024 shows that Thailand’s (CPI) (Consumer Price Index) is 110.3, down 0.3% compared to the previous year. The overall inflation rate is 1.11%. Although it has decreased, it still exceeds the target set by the Bank of Thailand.

Who Benefits and Who Loses from Inflation?

Inflation does not affect everyone equally. Beneficiaries include entrepreneurs, traders, and those earning from sales, as they can raise prices and increase profits. Conversely, salaried employees are at a disadvantage because their wages tend to increase at a lower rate than inflation.

Debtors benefit even when borrowing money because the real amount they owe decreases. Meanwhile, creditors gain the opposite.

A clear example is PTT Public Company Limited, which reported a net profit of 64,419 million baht in the first half of 2024, a 12.7% increase compared to the previous year, due to soaring crude oil prices.

How Inflation Affects Our Daily Life

Inflation impacts various aspects of daily life:

Higher cost of living reduces people’s purchasing power. For example, the prices of key daily goods have changed: red pork from last year at 137.5 baht/kg to 133.31 baht/kg this year; small fish prices have decreased; but LPG remains at 423 baht per tank, and chicken breast stays at 80 baht/kg. Overall, consumers need to plan their spending more carefully.

Decreased sales occur as people buy less, causing difficulties for businesses. Some entrepreneurs delay expansion, reduce hiring, or even close down.

Slower economic development can happen if inflation becomes severe, leading to lower GDP growth rates. If stagflation (high inflation but stagnant economy) occurs, it would be an undesirable situation.

Currently, Thailand’s economy is not in stagflation, but that doesn’t mean everything is fine. Investors and the public must stay informed.

How Does Inflation Differ from Deflation?

Deflation is the opposite economic condition of inflation, where prices of goods and services decrease continuously. It generally results from reduced demand or insufficient money circulation.

Although both are natural economic cycles, if they occur intensely and persist for a long time, both can harm the economy and people’s livelihoods.

How to Cope with Inflation

When inflation occurs, investors should adapt through various methods:

Plan investments by depositing money in fixed deposit accounts with high interest or investing in assets with higher returns, such as stocks, mutual funds, or real estate.

Avoid unnecessary debt by making quick decisions and limiting non-essential purchases. Having a strict spending plan is advisable.

Invest in stable assets like gold, which tends to move in tandem with inflation and has intrinsic value.

Focus on stocks that benefit from rising interest rates, such as bank stocks. Insurance companies benefit from higher yields on bonds, and food sector stocks have pricing power.

Stay informed about inflation rates and the policies of the Bank of Thailand, as these are key factors. Always monitor economic news.

It’s Crucial to Understand Clearly

Moderate inflation is beneficial for the economy. It encourages consumption and investment, promotes business expansion, and increases employment. However, if inflation rises too high and turns into Hyperinflation, it causes problems.

Understanding inflation helps investors make correct investment decisions and allows the general public to plan their personal finances more effectively. Ultimately, staying updated with news and economic conditions is the key to survival and prosperity in a constantly changing economic landscape.