What is inflation, why does it happen, and how can we cope with it?

Inflation occurs every day and surrounds us constantly. If you observe carefully, you’ll see that the prices of goods—from rice, meat, to even utilities—continue to rise. This is the result of inflation happening in the economy.

What causes inflation

Inflation is an economic condition where the prices of goods and services tend to increase continuously. Simply put, our money decreases in value, requiring more money to buy the same item.

In the global economic recovery after the pandemic crisis, several factors drive inflation upward, including:

Demand for goods surges but supply is insufficient When the economy reopens, people rush to buy goods (revenge spending) to compensate for accumulated demand during lockdowns, but factories cannot keep up.

Production costs skyrocket Crude oil, natural gas, and raw metal materials prices rise rapidly, even as global producers reduce extraction, resulting in higher overall production costs.

Transport and logistics issues Container shortages, chip shortages, and transportation disruptions all increase shipping and production costs.

Who benefits and who suffers from inflation

Beneficiaries: Entrepreneurs and business owners can raise prices in line with inflation. Shareholders, banks, and debtors (pay back with less valuable money).

Those who suffer: Salaried employees because their wages increase less than inflation, creditors, and cash holders.

How does inflation cause damage

Cost of living rises, purchasing power decreases In January 2024, prices for pork, eggs, fresh vegetables, LPG, and fuel changed multiple times over the past year, reducing the purchasing power of ordinary families.

Economic slowdown, business closures When goods become expensive, consumers reduce purchases. Business sales decline, costs remain high, but income drops. Some businesses cut staff or shut down.

Unemployment increases During stagflation (high inflation but sluggish economy), many countries face unemployment and a stagnant labor market.

The difference between inflation and deflation

Inflation occurs when the prices of goods and services rise, but the economy can still grow. Deflation is the opposite: prices fall, demand shrinks, and the economy deteriorates. Both are dangerous if prolonged.

How to measure inflation

Every month, the Ministry of Commerce collects data on 430 items and calculates the Consumer Price Index (CPI). The change in CPI compared to the previous year is the inflation rate used by the Bank of Thailand as a measure.

Data for January 2024 shows CPI at 110.3, an increase of 0.3% from the previous year, indicating a continued decrease in inflation for the fourth month, driven by lower energy, vegetable, and meat prices.

What signals indicate rising inflation

The US economy is growing faster than expected Some emerging markets are also expanding well, increasing global demand for goods.

Geopolitical tensions The war in Ukraine and trade sanctions disrupt supply chains in some countries.

Loose fiscal policies Many governments continue to spend heavily, injecting too much money into the economy.

However, IMF data for January 2024 forecasts global economic growth of 3.1% in 2024. Although inflation is decreasing, risks from geopolitical tensions and uncertain supply remain.

Examples of profit-making from inflation

During a period of soaring oil prices, PTT Public Company Limited ((PTT)) was able to generate massive profits. In the first half of 2023, it earned 1.68 trillion baht with a net profit of 64.4 billion baht, up 12.7% from the previous year. Energy, real estate, food, and banking sectors all benefit from inflation.

What to do to survive inflation

Invest to make your money work Don’t keep cash idle, as its value declines. Invest in stocks, funds, or real estate to achieve returns exceeding the inflation rate.

Avoid debt without income Don’t speculate on small gains or buy unnecessary items. Manage expenses more strictly.

Invest in strong assets Gold, government bonds, Floating Rate Bonds, or Inflation-Linked Bonds are stable and offer returns tied to inflation.

Choose stocks that benefit Banking, insurance, food, and energy sectors tend to profit as inflation rises, since they can pass costs to consumers.

Follow news closely Central bank policies, global economic data, and supply situations all influence investment decisions.

Summary

Moderate inflation helps economic growth, but when it becomes excessive (Hyper Inflation), it turns into a daily life threat. The difference from deflation is that inflation still involves money circulating, whereas deflation leads to severe economic downturns. Both are dangerous if prolonged.

Investors should not fear inflation but understand it and develop appropriate investment strategies to protect their money from erosion and to seize profit opportunities amid changing economic conditions.