Why is your wallet shrinking: Understanding inflation

Prices of rice, eggs, and oil increase every month. Salaries stay the same, but the cost of living keeps rising. This is the inflation that is eating away at the pockets of the entire country.

What is inflation and why is it scary?

Simply put, inflation (Inflation) is a condition where the prices of goods and services continuously rise, causing the money in your hand to buy less than before.

Real example: 50 baht ten years ago could buy many plates of rice, but today it can only buy one or none at all. That’s inflation eroding your purchasing power.

From 2021 to 2024, you can clearly see from the table of oil, pork, and eggs prices that all have increased significantly. The year 2022 was the worst, as the Russia-Ukraine war caused a global shortage of goods.

Who benefits from inflation and who loses?

Beneficiaries:

• Traders and small entrepreneurs can raise prices proportionally to their costs.
• Business owners have opportunities to increase profits.
• Shareholders benefit from inflation pushing up profits.
• Creditors, as they repay loans with less valuable money.

Losers:

• Salary earners, as their wages increase less than inflation.
• People who save money, as its value diminishes quietly.
• Debtors, who receive money worth less than before.

What causes inflation?

Generally, there are 3 main causes:

1. Demand-Pull Inflation (Demand exceeds supply) People want to buy more, but the market doesn’t have enough goods. Sellers raise prices. This is called “Revenge Spending” — consumers decide to spend after a recession.

2. Cost-Push Inflation (Production costs increase) Prices of oil, natural gas, steel, and copper rise globally. Producers must raise their prices accordingly. Logistics constraints (Supply Chain Disruption) also increase costs.

3. Printing Money Inflation (Government prints more money) When the government releases too much money, the total money supply increases, making each baht less valuable.

Important note: Currently, global inflation results from multiple factors combined. The main factors are the global economic recovery post-COVID, geopolitical tensions (War), and international shortages.

Thailand’s inflation history — lessons from the past

Thailand has experienced worse inflation:

• 1974: Inflation exceeded 24.3% due to Middle East war and soaring oil prices.
• 1980: Reached 15% amid Iran-Iraq war.
• 1998: After the “Asian Financial Crisis,” the baht depreciated, and inflation soared to 7.89%.
• 2008: Hit 5.51%.
• 2022: Spiked to 7.10% due to Russia-Ukraine war.
• 2024 (January): Dropped to 1.11% (year-over-year).

IMF data (January 2024) forecasts the global economy will grow 3.1% in 2024 and 3.2% in 2025, higher than previous estimates but still below the historical average due to tight monetary policies.

How does inflation affect daily life?

Higher living costs: Your money buys less. Families must decide between essential purchases or paying bills.

Decreased business sales: When prices rise, customers buy less. Some businesses may need to lay off staff.

Limited company expansion: Higher costs mean lower profits, delaying new investments, and increasing unemployment.

Stagflation (A no-win situation) is when the economy stagnates but prices keep rising. No one wants this — no jobs, but goods are expensive.

Essential goods price table: 4-year changes

Most importantly: Eggs, chicken, and vegetables decreased since 2022 but are still higher than in 2021.

Has inflation decreased significantly, and what about deflation?

Deflation (Falling prices) is the opposite — prices continuously decline.

Deflation is a more serious disaster than inflation because it halts economic activity.

How to measure inflation: CPI index

Every month, the Thai Ministry of Commerce collects prices of 430 items and calculates the Consumer Price Index (CPI).

Simple formula:

• CPI rising from last month → inflation increases
• CPI falling → inflation decreases

Latest data (January 2024):

• CPI = 110.3 (Base year 2019 = 100)
• Up 0.3% compared to the end of last year
• Down 1.11% year-over-year (compared to January 2023)
• This is the 4th consecutive month of decline — the lowest in 35 months!

Reasons for the decline:

• Energy prices fell due to government subsidies
• Fresh vegetables and meats decreased as harvests entered the market

PTT’s massive profits amid inflation

A clear example of who benefits: In the first half of 2022, when oil prices soared:

• Total revenue: 1,685,419 million THB
• Net profit: 64,419 million THB (growth of 12.7% year-over-year)
• PTT itself earned 24% profit, with the rest from subsidiaries.

This is huge profit from rising oil prices, even though the company did not do anything extraordinary.

Pros and cons of inflation

Advantages: ✅ Business expansion — prices go up → more hiring → more circulation of money ✅ Lower unemployment — the market needs more workers ✅ Debtors benefit (paying back with devalued money)

Disadvantages: ❌ If inflation rises too fast, consumers cut back, sales drop, and businesses lay off staff ❌ Hyperinflation (Inflation out of control): prices skyrocket, money rapidly loses value ❌ Reduced purchasing power — money in your pocket devalues ❌ Unstable economy — people tend to speculate in risky assets

When inflation occurs: how to adapt and invest

1. Plan investments — don’t keep money in banks

During inflation, deposit interest rates are very low. Even if they rise, they won’t keep up with inflation. Invest in stocks, mutual funds, or real estate for higher returns.

2. Avoid unproductive debt

Don’t buy unnecessary items or borrow for consumption or luxury.

3. Invest in safe assets

Gold — moves with inflation. When inflation is high, gold prices tend to rise. It’s an asset that “resists inflation.”

4. Follow news updates

Decisions to invest or save depend on inflation rates. Keep track of the figures monthly.

5. Deposit with high-interest accounts

If safety is your priority, choose fixed deposit accounts with high interest, but be patient until maturity.

Which stocks benefit from inflation?

Advanced investment strategy: trading CFDs on gold

Based on the author’s experience, a popular way to speculate on gold during inflation is Trading CFDs (Contract For Difference).

Advantages:

• Can profit from both rising and falling markets
• No need to buy actual gold, just contracts
• Low entry level, suitable for beginners

Summary: What is inflation, and how should we respond?

The truth:

• Inflation occurs when prices of goods and services rise, causing your money to lose value.
• It results from excess demand + high production costs + monetary policy.
• If inflation is moderate (2-3% per year), it’s good for the economy.
• If inflation becomes hyperinflation (out of control), it’s disastrous.

What you should do:

1. Don’t keep cash — its value declines
2. Invest continuously — stocks, real estate, gold
3. Choose stocks that benefit — banks, insurance, energy
4. Follow CPI figures — make investment decisions based on the situation
5. Protect yourself — avoid unproductive debt

Smart investors are not afraid of inflation. They use inflation as a tool to generate profits instead.