Inflation is coming: What investors need to know

The economy is volatile, and one of the issues currently on investors’ minds is inflation, which has been trending upward. But what exactly is inflation? Where does it come from? And how should we invest when it’s happening?

Why Worry About Inflation

Before diving deeper, imagine that 10 years ago, 1,000 THB could buy a lot. But today, that same amount buys less. That’s inflation at work – not that your wallet is shrinking, but that the money in your wallet is losing value.

According to the latest data, in January 2024, the (CPI) (Consumer Price Index) was at 110.3, down 1.11% compared to the previous year. But this doesn’t mean the economy is doing well, as global tensions and supply chain issues still persist.

What Is Inflation Exactly?

Inflation is the continuous rise in the general price level of goods and services. In another perspective, it’s the devaluation of money – you need more money to buy the same thing.

For example: Mr. Somchai, 20 years ago, could buy several plates of rice with 50 THB. Today, that amount only buys one plate. And in another 20 years, rice might cost 100 THB per plate, which is not unusual.

What Factors Cause Inflation?

1. Demand-pull inflation (

The global economy recovers after COVID. Consumers start spending again, but factories can’t keep up with demand, so sellers raise prices.

) 2. Cost-push inflation ### Prices of crude oil, natural gas, and other commodities surge—especially since the Russia-Ukraine war and supply chain disruptions, such as shortages of containers and semiconductors.

( 3. Printing more money )Printing Money Inflation ( Governments print money to stimulate the economy, increasing the money supply in the system.

Current Situation: According to IMF reports, the global economy is projected to grow by 3.1% in 2024, but inflation remains a challenge. Thailand shows signs of entering Stagflation )High inflation but stagnant economy###, which is an undesirable scenario.

Who Is Affected by Inflation?

( Beneficiaries ✅

• Businesses: Can raise prices and increase profits, especially oil companies. For example, PTT’s first half of 2023 had revenue of 1.68 trillion THB and net profit of 64.4 billion THB, up 12.7%.
• Banks: Loan interest rates increase.
• Major shareholders: Especially in banking, insurance, and food sectors.

) Losers ❌

• Salaried employees: Wages increase slowly, but living costs rise faster.
• Debtors: The value of money decreases.
• Savers: Savings lose value.

Analyzing the Situation Through Numbers

According to statistics from the Ministry of Commerce, prices of 430 items are tracked monthly to calculate the CPI. As of January 2024:

Clearly – everyday goods are becoming more expensive.

Inflation vs. Deflation: The Other Side of the Coin

If inflation is rising prices, then deflation is falling prices. When demand is low, producers lower prices, businesses cut jobs, and the economy slows down.

Both are part of economic cycles, but if severe, they can be harmful to the public.

How Does Inflation Affect Real Life?

For the public

• Higher living costs, increased expenses
• Reduced purchasing power
• Without investment, savings lose value

For businesses

• Production costs rise, but sales don’t increase
• Some may delay production or lay off workers

( For the country

• Economy may enter Stagflation )Inflation + stagnation###
• Risk of asset bubbles
• Unemployment rises

What Should Investors Do When Inflation Occurs?

1. Avoid holding cash

Interest on deposits is low, and inflation erodes value. Therefore, invest your money.

2. Invest in real assets

• Gold: Prices tend to move with inflation; high inflation often pushes gold prices up.
• Real estate: Rental income and property prices tend to follow inflation.
• Floating Rate Bonds: Interest rates adjust according to market conditions.

( 3. Invest in benefiting sectors

) 4. Plan your spending

• Reduce unnecessary debt
• Cut unnecessary expenses
• Build emergency savings

5. Stay informed

Monitor IMF policies, central bank decisions, and global commodity prices, as they all impact inflation and your investments.

Has Inflation Been Something New?

Thai history shows:

• 1974: Inflation exceeded 24.3% due to the global oil crisis.
• 1998: After the 1997 economic crisis, inflation was 7.89%.
• 2008: Surpassed 5.51%.
• 2022: Reached 7.10% due to the Ukraine war.

All these indicate that inflation exists and will come. Thailand has experienced it; if left unchecked, it can become a serious problem.

Summary: What Is Inflation and Why Should You Care?

Inflation is not something trivial. Moderate inflation helps the economy grow and creates jobs. But if it spirals into ###Hyper Inflation###, it becomes “hyperinflation,” and the economy can collapse.

For investors, the opportunity lies in choosing the right assets – investing in sectors that benefit from inflation, gold, real estate, and good bonds. Planning your spending wisely is also crucial.

Inflation will come, but if you prepare, you can “survive” and even profit from it.