Understanding Inflation: From Theory to Smart Investment

When it comes to inflation, most investors feel anxious because it alters the potential value of the money they are holding. This article will explore the structure of this economic phenomenon in depth, including how investors can adapt to avoid negative impacts and instead turn the situation to their advantage.

What is (Inflation) and Why Does It Occur?

Inflation is not a mysterious concept. It is a natural economic phenomenon that occurs when the prices of goods and services tend to rise continuously. From the perspective of money, inflation is when the value of money decreases, resulting in us needing to pay more to buy the same items.

For example: Suppose Mr. A has 50 baht. Ten years ago, that could buy several plates of rice, but today, the same amount only buys one plate. In ten more years, 50 baht might not even buy half a plate. That is the power of inflation.

###What causes inflation?(

Currently, global inflation stems from several interconnected factors:

1. Rapid increase in demand )Demand Pull Inflation(
After the global economic recovery, consumers accumulated savings over time. When countries reopened businesses, demand for goods surged immediately )Revenge Spending(. However, supply was still insufficient, causing sellers to raise prices.

2. Rising production costs )Cost Push Inflation(
Prices of commodities like natural gas, crude oil, coal, iron, and copper have increased significantly. Managing supply chains during COVID-19 led to higher production costs, which were passed on to consumers.

3. Supply chain disruptions )Supply Chain Disruption(
Shortages of containers and semiconductor chips have driven up transportation and manufacturing costs. These issues have persisted to the present.

4. Increase in money supply )Printing Money Inflation(
When governments print more money to address crises, the money supply increases while goods remain unchanged, leading to inflation.

How Does Inflation Move: Data from Thailand

Thailand has also experienced significant inflation fluctuations. In 2517 (1974), inflation soared to 24.3% due to Middle Eastern conflicts. In 2523 (1980), inflation rose again from the Iraq-Iran war. After the 1997 Thai economic crisis, the baht depreciated, causing inflation to reach 7.89%.

Latest data from January 2567 (2024): The )Consumer Price Index: CPI( stands at 110.3, up 0.3% compared to the previous year )Base year 2562 = 100(. The overall inflation rate has decreased to 1.11% per year, the lowest in 35 months.

This decline is due to easing energy prices and fresh agricultural product prices )vegetables and meats( entering the market in larger quantities.

Inflation vs. Deflation: Opposite Enemies

Many people confuse deflation with inflation. In fact, deflation )Deflation### is the opposite of inflation.

Both phenomena, if severe and prolonged, can cause damage to the economy and society.

Who Benefits and Who Suffers from Inflation

###Beneficiaries📈

• Businesses and traders: Can raise prices, increasing profits
• Shareholders: Companies with good profits can increase stock prices
• Banks: Interest income from loans increases
• Debtors: Pay back loans with money that has less value

###Those Who Lose📉

• Salaried employees: Salary increases lag behind inflation
• Depositors: Interest earned is eroded by inflation
• Creditors: Receive repayment in devalued money
• Consumers: Cost of living rises, reducing purchasing power

Effects of Inflation on Society and Economy

###Impact on the General Public
The cost of living increases across the board. From 2564 to 2567 (2021–2024), changes in food and fuel prices illustrate this:

Consumers must pay more for basic goods, reducing their purchasing power.

###Impact on Businesses
When inflation raises costs but consumer spending declines, many businesses must halt investments, cut back on staffing, or even shut down in severe cases.

(Impact on the Country
If inflation remains high, rapid price increases—known as Stagflation )High inflation with economic slowdown###—pose a threat. For example, central banks raising interest rates → higher borrowing costs → reduced consumer spending → lower business sales → layoffs → rising unemployment → slow GDP growth.

Main Methods to Track and Measure Inflation Rate

(Consumer Price Index: CPI)
Every month, Thailand’s Ministry of Commerce collects data on 430 goods and services to calculate the CPI. The increase in CPI compared to the previous year indicates the general inflation rate.

Latest data (January 2567 (2024)):

• CPI at 110.3 (Base year 2562 = 100)
• YoY inflation rate = 1.11%
• MoM change = +0.02%

Types of Inflation Phenomena

Besides normal inflation, there are other more severe forms:

Hyperinflation (Extremely high inflation)

• Rapid and intense price increases
• Prices soar, consumers cannot keep up
• Production declines, unemployment rises

Stagflation (Inflation with stagnation)

• Slow economic growth combined with rising prices (Worst-case scenario)
• GDP growth is sluggish while the cost of living remains high

Global Economic Outlook IMF 2567 (2024)

According to IMF data at the end of January 2567 (2024):

• Global GDP growth: approximately 3.1% in 2567 and 3.2% in 2568
• Slightly above expectations due to the US economy’s phase
• Inflation rate decreasing: easing concerns of a hard landing, but risks remain from geopolitical tensions and supply issues
• Tight monetary policies: central banks maintain high interest rates to control inflation

Case Study: PTT Corporation Profiting from Inflation

An example of profit-making during inflation: In the first half of 2565 (2022), PTT Public Company Limited and its group reported revenue of 1,685,419 million THB and net profit of 64,419 million THB, a 12.7% increase year-over-year.

Reason: Rising crude oil prices due to the Russia-Ukraine war benefited oil companies from inflation.

What to Do When Inflation Approaches

( 1. Carefully plan investments
When deposit interest rates are low, consider investing in higher-yield assets such as stocks, mutual funds, or real estate.

) 2. Avoid bad debt
Limit borrowing that does not generate income. Plan expenses carefully.

( 3. Invest in stable assets
Gold, real estate—assets likely to appreciate with inflation.

) 4. Follow news updates
Inflation is affected by geopolitical changes and policy decisions; stay informed.

Investment Options During Inflation

(High-yield savings accounts)

• Choose fixed-term accounts at banks for 12 or 36 months ###
• Higher interest than regular savings, but often still below inflation

###Stocks and Real Estate Funds###

• Rental prices tend to move with inflation
• Provide dividends and capital gains
• Riskier; requires thorough research

###Floating Rate and Inflation-Linked Bonds###

• Bonds with interest rates adjusted according to inflation
• Can adapt to economic conditions
• Verify issuer credibility

(Gold)

• Price moves in line with inflation
• Has intrinsic value
• Suitable for long-term speculation or CFD trading ###both bullish and bearish###

###Stocks Benefiting from Inflation

When Inflation Declines: A Sign of Recovery

Latest data shows Thailand’s inflation has fallen to 1.11% per year (January 2567), the lowest in 35 months.

Reasons for decline:

• Government measures to reduce energy costs
• Increased agricultural output lowering vegetable and meat prices
• High base effect from last year’s prices

Although inflation has decreased, monitoring economic news remains crucial to prepare for market movements.

Summary: Stay Calm About Inflation

Inflation is part of the natural economic cycle. Moderate inflation can support growth and employment, but excessive inflation leads to Hyperinflation, causing economic recession.

The key difference between inflation and deflation is that inflation involves some growth, while deflation results in economic contraction—something no one desires.

Investor strategies should be:

• Closely monitor inflation rates
• Invest in sectors that benefit from inflation
• Avoid holding too much cash
• Invest in assets with stability

Understanding what inflation is and how to manage it is part of being a smart investor. Knowing this can distinguish those who build wealth from those who suffer losses.