When prices keep rising, it's a sign that "inflation" is on its way.

Currently, prices in the market are continuously rising, making everyday purchases more burdensome. This phenomenon is called “inflation,” which has a significant impact on our economy and personal finances. This article will explore the meaning, causes, and smart ways to cope with this phenomenon.

Inflation - An Economic Phenomenon Changing Our Purchasing Power

What is inflation and how does it occur?

Inflation refers to an economic condition where the prices of goods and services tend to increase steadily over a period of time. From a currency perspective, inflation is a situation where the value of money decreases gradually, requiring more money to buy the same item.

For example, in the past, Mr. A had 50 baht, which could buy several bowls of rice. Now, the same amount of money can only buy one bowl. Looking ahead, in several decades, the price of one bowl of rice might reach 100 baht or more.

Inflation is not just a natural economic indicator but also a key factor that investors and policymakers use to plan financial strategies and economic policies. When inflation rates rise or fall, the effects on the stock market and investment directions also change accordingly.

Who benefits from inflation?

The groups that benefit from inflation include self-employed entrepreneurs, traders, or those with flexible income in cash, as they can adjust their prices according to the situation.

Unlike salaried employees, whose wages may increase, most of the time their wage increases are less than the inflation rate, leading to a practical loss of purchasing power.

What are the causes of inflation?

Main factors leading to inflation

The first factor is demand exceeding supply. When the global economy recovers after volatility, people with accumulated savings during a recession rush to buy goods. The problem is, production has not yet increased sufficiently, causing sellers to raise prices.

The second factor comes from rising production costs. Commodity prices on the global market, such as natural gas, crude oil, coal, iron, and copper, have surged due to production disruptions and supply chain issues. Often, exporting countries collaborate to limit production. The pandemic caused crude oil prices to shift from record lows in 2020 to record highs as countries reopened their economies.

The third factor is shortages of key goods, especially container shortages for transportation and semiconductor shortages for electronics manufacturing, driven by increased demand during remote work.

The fourth factor is mass money printing. If the government prints more money than necessary, the total money supply in the system increases, leading to a decrease in money’s value and severe inflation.

Current Global Economic Conditions

Many signals indicate that the global economy is approaching stagflation (High inflation with sluggish economic growth). According to IMF data since January 2567, the global economy is expected to grow by 3.1% in 2567 and 3.2% in 2568, slightly higher than previous forecasts but still below historical averages due to tightening monetary policies.

In Thailand, the economy has not fully entered stagflation yet, but signals remain… stuck in a cycle.

Components of Inflation Rate and Key Indicators

What is the Consumer Price Index (CPI)?

Every month, the Ministry of Commerce collects data on prices of 430 items of goods and services to calculate the Consumer Price Index (CPI). An increase in CPI compared to the previous year indicates the general inflation rate that the Bank of Thailand (ธปท.) uses as a monetary policy target.

Latest Thai Inflation Statistics

According to the Office of Trade Policy and Strategy (สนค.), Thailand’s CPI in January 2567 was at 110.3 (Base year 2562 = 100), up 0.3% from the same period last year.

Compared to January 2566, which was at 108.18, the current index is 106.98, resulting in a year-over-year inflation rate (Year-over-Year) of only 1.11%, the lowest in 35 months.

This decrease was driven by falling prices in energy groups (benefiting from government energy cost reduction measures), as well as increased supply of products like fresh vegetables and meats.

However, on a month-over-month basis (Month-over-Month), the index increased by 0.02%, supported by rising fuel prices, electricity costs, and transportation fares for the first time after four consecutive months of decline.

Past Inflation History of Thailand

Looking back at Thailand’s inflation history, in 2517, inflation reached 24.3% due to the Middle East war affecting oil prices. The next severe inflation was in 2523, caused by regional conflicts.

Subsequently, inflation gradually decreased until 2541, when the 1997 economic crisis caused the Thai baht to depreciate sharply. The CPI surged to 7.89%. Since then, Thailand has managed to keep inflation around 5% only once in 2551, when it exceeded to 5.51%.

The situation changed in May 2565, when inflation jumped to 7.10% due to signs of a global energy crisis triggered by the Russia-Ukraine war.

Winners and Losers in the Inflation Equation

Who benefits from inflation?

Beneficiaries:

• Entrepreneurs and private businesses, as they can raise prices according to the situation
• Shareholders, especially in banking and energy sectors, which see increased profits from inflation
• Debtors, because the real value of their debt repayments decreases
• Banks, which earn higher interest margins

Who is disadvantaged by inflation?

Those at a disadvantage:

• Salaried employees (with fixed wages), as their wages do not keep pace with inflation
• Creditors, who receive money of lesser real value
• Savers who do not invest their savings, as the value of their savings diminishes

How does inflation affect daily life?

Examples of essential goods price changes

Here is a table showing how prices of daily essentials have increased over the years:

It’s clear that inflation causes essential daily goods prices to fluctuate significantly, increasing living costs continuously, and burdening the public financially.

Effects on People and the Economy

Impact on the general public: Higher living costs reduce purchasing power, making income insufficient for expenses.

Impact on entrepreneurs: Rising prices may reduce sales, while production costs increase. Some businesses might delay investments, cut staff, or even shut down.

Impact on the country: Reduced consumption leads to lower business revenue, investment slows down, and long-term productivity development may halt. Moreover, if inflation reaches hyperinflation levels with negative interest rates, people may turn to speculation in high-risk assets, creating bubbles in various markets.

Other economic conditions related to inflation: Deflation

Deflation is the opposite of inflation. It is an economic condition where the prices of goods and services decrease continuously, caused by reduced demand or insufficient money supply in the economy.

When deflation occurs, producers are less eager to produce, investments slow, employment drops, and the economy stagnates.

Both inflation and deflation, if severe and prolonged, lead to losses. Therefore, a healthy economy maintains inflation at an appropriate level.

Profitable businesses during inflation

Looking at real examples, PTT Public Company Limited (มหาชน) benefited immensely from the surge in oil prices during high inflation. In the first half of 2565, PTT and related companies in Thailand and abroad generated total revenue of 1,685,419 million THB and net profit of 64,419 million THB, growing 12.7% compared to the same period last year.

This profit of 64,419 million THB came mainly from PTT’s operations (24%), with the rest from group companies, exemplifying how companies can counteract and profit from inflation.

How to cope and invest during inflation

Government measures

When inflation rises sharply, governments and central banks often implement compensatory measures such as:

• Raising policy interest rates to withdraw excess liquidity
• Controlling prices of scarce goods
• Introducing assistance measures for low-income groups

Personal investment strategies

Plan smart investments: When deposit interest rates are low during inflation, investing in assets with higher returns, such as stocks, mutual funds, or real estate, is preferable.

Avoid unnecessary debt: Reduce unnecessary purchases and tighten spending plans.

Invest in stable assets: Gold is considered a stable store of value that does not depreciate over time and often appreciates in line with inflation.

Follow economic news: Inflation impacts personal finances; staying informed helps prepare accordingly.

Suitable investment options

High-interest savings accounts: Fixed deposit accounts with higher interest rates, such as 12- or 36-month deposits, offer better returns than regular savings.

Real estate funds: Rental income tends to adjust with inflation and is less volatile than stock markets.

Floating Rate Bonds or Inflation-Linked Bonds: These have interest rates that adjust according to inflation changes.

Gold and commodities: Move in tandem with inflation, serving as long-term durable assets.

Stocks benefiting from inflation

When inflation is high, investors should consider stocks in sectors that benefit:

Bank stocks: Main income from interest margins; as market interest rates rise, bank profits increase accordingly.

Insurance stocks: Often hold government bonds; rising inflation increases bond yields.

Food stocks: Essential goods, with companies able to pass price increases to consumers and maintain bargaining power.

Summary: Understanding Inflation

Inflation is an economic phenomenon we must face. At moderate levels, it promotes economic growth, employment, and circulation of money.

However, when inflation becomes excessive (Hyperinflation or “money devaluation”), it turns into a threat to the economy and consumers.

Investors and individuals can create opportunities and protect themselves from inflation by:

• Planning smart investments
• Choosing assets that adjust with inflation
• Avoiding unnecessary debt
• Regularly following economic news

A thorough understanding of inflation will help you make smarter financial and investment decisions.