Are product prices soaring? Inflation is here. Just so you know, it's not a big deal.

When Thais open their wallets today to buy things and feel that their money isn’t enough like before, it’s because “inflation” is already on its way. Whether it’s the rising costs of rice, oil, electricity, or the increasing cost of living, this phenomenon continuously impacts our daily food expenses.

What Is Actual Inflation?

Inflation is a situation where the price levels of goods and services in the market tend to increase steadily. In other words, the value of our money is decreasing. This means that the same amount of money can buy fewer items than before.

Let’s understand with a simple example: 20 years ago, 100 baht could buy several plates of rice. But today, the same 100 baht can only buy 1 or 2 plates. This is the effect of inflation gradually eroding the value of money since then.

Who benefits, who is at a disadvantage

Beneficiaries are mainly individual entrepreneurs, vendors, and business owners because they can raise their prices. Meanwhile, salaried employees often see their wages increase at a slower rate than inflation.

Where Does Inflation Come From?

Recently, global inflation has not stemmed from a single event but from the convergence of multiple factors:

1. Increased demand after the COVID-19 pandemic, countries gradually reopened, and people who had saved money for a long time started to spend again (revenge spending). However, production couldn’t keep up, leading to higher demand than supply, and natural prices surged.

2. Rising production costs due to significant increases in crude oil, natural gas, and commodities worldwide. Production disruptions and major oil-exporting countries limiting output caused prices to spike. For example, crude oil prices hit record highs after falling to lows in 2020 when the world reopened.

3. Supply chain issues such as shortages of containers, semiconductor chips, and employment disruptions increased production costs, especially for electronics, which saw demand surge during remote work.

4. Government policies like printing more money into the economy, lowering interest rates, and high government spending.

How Does CPI Measure Inflation?

Every month, Thailand’s Ministry of Commerce collects data on the prices of 430 goods and services to calculate the Consumer Price Index (CPI)(Consumer Price Index: CPI).

An increase in CPI compared to the previous year indicates the general inflation rate that the Bank of Thailand (BoT) targets. This helps investors and policymakers reference inflation trends.

The CPI for January 2024 was 110.3, up 0.3% from the same period last year (Base year 2019 = 100). The overall inflation rate (Year-on-Year) decreased to 1.11%.

How Does Inflation Affect Daily Life?

Impact on the general public

Higher cost of living, less purchasing power: As prices rise, the purchasing power of money decreases. People need to pay more to buy the same goods and services. This explains why essential items like meat, vegetables, oil, and eggs have become more expensive.

Basic product price table (Baht):

• Red pork: 137.5 (2021) → 205 (2022) → 125 (2023) → 133.31 (2024)
• Chicken breast: 67.5 → 105 → 80 → 80
• Diesel oil: 28.29 → 34.94 → 33.44 → 40.24 Baht/liter
• Gasohol: 28.75 → 37.15 → 35.08 → 39.15 Baht/liter

Impact on entrepreneurs

When prices rise, sales decline. Meanwhile, production costs also increase. Some companies may delay expansion, reduce investments, and eventually lay off employees.

Impact on the national economy

If people buy less, businesses can’t sell their products. New investments slow down, and long-term production capacity development stalls. In severe cases, when real interest rates turn negative, people speculate in high-risk assets, creating bubbles in the market.

Stagflation: An Economic Disaster

The current global economy shows signs of entering “Stagflation,” a condition where prices are high but economic growth stalls. Unemployment rates are high, and in this situation, people have no money to buy. Entrepreneurs can’t sell their goods, leading to price cuts, reduced profits, and business closures. Thailand has not fully entered this state yet but must monitor it due to fluctuations in unemployment.

How Are Inflation and Deflation Different?

Deflation (Deflation) is the opposite phenomenon of inflation, where the price levels of goods and services decrease steadily. It may result from reduced demand or insufficient money supply in the system.

Who Benefits from Inflation?

A recent example is PTT Public Company Limited (Public), which benefits from rising oil prices. In the first half of 2022, it earned 1,685,419 million Baht with a net profit of 64,419 million Baht, growing 12.7% compared to the previous year.

Banking sector: When interest rates rise, banks profit from higher interest margins.

Insurance sector: Investment in government bonds yields higher returns.

Food sector: Essential goods with pricing power.

Energy sector: Benefits from high oil prices.

What to Invest in When Inflation Comes?

1. Gold – Safe Asset

Gold moves in tandem with inflation. The higher the inflation, the higher gold prices tend to go. CFD gold trading allows for both bullish and bearish positions without physical ownership.

2. Real Estate

Rents adjust with inflation and are less volatile than stocks. For those with extra cash, investing in real estate is an attractive option.

3. Floating Rate or Inflation-Linked Bonds

Choose bonds with interest rates that adjust according to inflation, such as Floating Rate Bonds or Inflation-Linked Bonds.

4. Stocks that Benefit

• Banking stocks: higher interest margins
• Insurance stocks: higher investment returns
• Energy stocks: benefit from high oil prices

5. High-Interest Savings Accounts

Term deposits with higher interest rates can offer better returns, though still below inflation rates.

How to Manage Daily Life During Inflation

Plan expenses carefully: Cut unnecessary purchases, keep track of income and expenses.

Avoid bad debt: Borrow only for income-generating purposes, save for emergencies.

Learn about investments: Study investment options thoroughly, avoid impulsive decisions.

Follow news: Keep an eye on inflation rates, monetary policies, and geopolitical tensions—all affect financial planning.

Summary: Inflation Is a Double-Edged Sword

Moderate inflation can stimulate economic growth, business expansion, employment, and consumer spending. But once it reaches Hyperinflation, it becomes disastrous—prices soar so high that nobody buys, leading to economic contraction.

The difference with deflation is that deflation involves falling prices, which is dangerous for growth, opposite to general inflation.

Investors should:

• Monitor closely
• Invest in assets that benefit from inflation, such as gold and bank stocks
• Plan finances flexibly
• Avoid holding excessive cash that yields no returns

Inflation has arrived, but proper preparation and understanding can help us “ride through” this uncertain economic environment.