Inflation is coming. What investors need to know to protect their money

In this period, the world is facing increasingly challenging economic conditions, especially the inflation problem that impacts investors, entrepreneurs, and the general public. This article will help you gain a deep understanding of inflation, its causes, and ways to adapt to minimize its impact on your finances.

What is Inflation? Understanding the Basics is Important

Inflation refers to an economic condition where the prices of goods and services tend to rise continuously over a period. Another perspective is that the value of money decreases steadily, meaning that in the future, you will need to pay more to buy the same item.

Clear example

Suppose you have 100 baht, which could originally buy 2 plates of rice. After inflation occurs, that same 100 baht can now buy only 1 plate. Imagine many decades ahead, a single plate of rice might cost over 200 baht. Inflation is therefore significant for investors when making decisions in the stock market because changing inflation rates directly affect stock index movements.

Who benefits from inflation?

The groups that benefit most are private entrepreneurs and traders because they can adjust their product prices according to inflation. Shareholders involved in businesses that benefit from inflation, and debtors who can use “shrinking” money to pay off debts. This contrasts with salaried employees, whose wages may increase but often at a rate lower than inflation.

What Causes Inflation?

Generally, inflation arises from three main factors:

1. Demand exceeds supply (Demand Pull Inflation)

When consumers want to buy more goods and services but supply in the market is insufficient, sellers tend to raise prices.

2. Rising production costs (Cost Push Inflation)

When producers face higher costs—such as wages, raw materials, or energy—they pass these costs onto consumers by increasing prices.

3. Increase in money supply in the economy (Printing Money Inflation)

When the government or central bank prints more money than necessary, the total money in circulation increases, leading to a decrease in money’s value and uncontrolled inflation.

Current reasons for inflation expansion

Amid the global economic recovery post-crisis, notable signals include:

• Resumption of spending: As countries reopen, consumers rush to buy goods, but shortages occur due to limited production.
• Higher raw material costs: Oil, natural gas, and various metals prices rise significantly.
• Supply chain issues: Shortages of containers, semiconductors, and transportation problems increase production costs.
• Government spending policies: Stimulus measures in many countries sustain strong demand.

According to IMF data as of January 2567, the global economy is expected to grow by 3.1% this year and 3.2% next year, higher than previous forecasts but still below historical averages due to tight monetary policies.

Consumer Price Index (CPI) as a tool to measure inflation

How inflation is measured

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

The inflation rate used by the Bank of Thailand as a target compares the current year’s CPI with the previous year (Year-over-Year: YoY)

Latest Thai inflation statistics

In January 2567, Thailand’s CPI was at 110.3, an increase of 0.3% compared to January 2566 (Base year 2562 = 100)

Overall inflation (YoY) decreased to 1.11%, continuing a decline for the 4th month, the lowest in 35 months.

Reasons for the decrease:

• Energy prices dropped due to government measures to reduce energy costs.
• Fresh food prices declined, especially vegetables and meats, due to increased market supply.
• The base price in January 2566 was already high, making year-over-year comparisons lower.

However, the CPI (MoM) compared to December 2566 increased by 0.02% due to rises in other categories such as fuel prices, electricity, and transportation fares.

How does inflation differ from deflation?

Deflation is the opposite behavior of inflation, characterized by a continuous decline in the prices of goods and services.

Comparison table

Both high inflation and severe deflation are undesirable for the economy. If inflation becomes extremely rapid, it can lead to Hyperinflation, a state where prices soar uncontrollably and inflation spirals out of control.

How does inflation affect society, countries, and daily life?

Effects on the general public

Cost of living skyrockets: When inflation rises sharply, essential goods and services like food, energy, and fuel become more expensive at month’s end.

Reduced purchasing power: Even if wages increase, they often do not keep pace with inflation, leading consumers to buy less.

Effects on entrepreneurs and businesses

Higher costs and declining sales: Entrepreneurs face rising raw material and energy costs, while higher prices lead consumers to buy less.

Investment contraction: Business owners may delay expansion, equipment purchases, and may lay off employees.

Effects on the national economy

Risk of Stagflation: A situation where economic growth is slow or stagnant while inflation remains high, which is undesirable.

GDP contraction: Reduced consumer spending and lower business sales decrease the country’s gross domestic product growth rate.

Examples of changing prices

Here are some examples of basic goods price changes in Thailand:

Thai inflation history

Tracking Thailand’s inflation history helps us understand cycles:

• 1974: Inflation exceeded 24.3% due to the Israel-Arab war causing oil prices to spike.
• 1980: Inflation reached 20% amid the Iran-Iraq war.
• 1997: The Thai economic crisis caused the baht to depreciate, with inflation soaring to 7.89%.
• 2008: Inflation exceeded 5.51%.
• 2022: Inflation rose to 7.10% following the Russia-Ukraine war disrupting oil markets.

Who benefits and who loses from inflation?

Beneficiaries

✅ Entrepreneurs and business owners – can adjust prices according to inflation. ✅ Shareholders – profit from higher sales prices. ✅ Oil and gas companies – for example, PTT Public Company Limited in the first half of 2565 reported a net profit of 64,419 million THB, up 12.7% year-over-year. ✅ Debtors – inflation reduces the real value of debts.

( Losers

❌ Salaried employees – wages increase slowly, but living costs rise faster. ❌ Savers – the value of savings decreases, and deposit interest rates are low. ❌ Creditors – are repaid with money that has less purchasing power. ❌ Fixed-income earners – their purchasing power shrinks.

Pros and cons of inflation

) Advantages

✅ Increased employment: As the economy grows, businesses need more workers to meet demand.

✅ Money circulation: Moderate inflation encourages consumers to spend more, increasing money flow in the economy.

✅ Lower unemployment rate: Business expansion increases demand for investment and labor.

Disadvantages

❌ Hyperinflation: Rapid price increases lead to goods becoming unaffordable, sales decline, and businesses may reduce staff.

❌ Reduced purchasing power: If people save money without investing, its value diminishes over time.

❌ Financial instability: High-risk investments in assets seeking higher returns can lead to economic uncertainty.

What should you do when inflation is coming?

1. Develop appropriate investment plans

In inflationary conditions, low-interest savings accounts are not ideal. Consider investing in assets that offer higher returns.

2. Avoid unproductive debt

Before borrowing, think carefully whether the borrowed money will generate value. Avoid taking on debt that does not yield returns.

3. Build positions in stable assets

• Gold: Has intrinsic value and often moves in the same direction as inflation.
• Real estate: Rents tend to rise with inflation, making it a relatively stable investment.
• Inflation-linked bonds ###Inflation Linked Bond###: Offer returns adjusted according to inflation changes.

( 4. Stay closely informed

Inflation significantly influences investment decisions. Always analyze news and economic signals indicating changes.

What to invest in during inflation

) Beneficial stocks

Bank stocks: Rising interest rates increase banks’ net interest margins, boosting profits.

Insurance stocks: Insurance companies investing in government bonds benefit from higher yields.

Energy stocks: When inflation is driven by rising oil prices, oil and gas companies benefit.

Food stocks: Essential goods with high bargaining power.

Other tools

Gold: Profit-seeking methods include CFD trading, allowing speculation on both rising and falling prices without owning physical gold.

Real estate funds: Invest in property projects when budget allows.

High-interest savings accounts: Long-term fixed deposits ###12-36 months### offer higher interest rates.

Summary

Inflation is a natural economic phenomenon. When moderate, it can positively influence economic growth and employment.

However, when inflation appears as it does now, investors must prepare. The key is careful investment planning, selecting appropriate assets, and continuously monitoring economic news and signals. Understanding inflation is crucial to making smart investment decisions and effectively protecting your money.