What is inflation: A phenomenon that affects your wallet

Inflation: A Simple Definition You Need to Know

Inflation (Inflation) is not a mysterious phenomenon. It is simply an economic occurrence where the prices of goods and services gradually increase. When prices go up, your money becomes less valuable. If 50 baht used to buy many bowls of rice, today you can only buy one. That is the impact of inflation in daily life.

A clear sign is when asked, “How much did your stuff cost 10 years ago compared to now?” everyone usually responds that prices have increased significantly. This is evidence of the impact of inflation on your finances.

Who benefits? Who loses?

This is an interesting point of study: Inflation does not affect everyone equally.

Beneficiaries:

• Merchants and entrepreneurs because they can raise prices and sell more
• Business owners with flexible income who can adjust their earnings according to the situation

Losers:

• Salaried employees, even if their wages increase, the raise is not enough to keep up with inflation
• People who save money without investing, as the value of their savings diminishes

Why does inflation occur?

Currently, there are three main causes driving the impact of inflation:

1. Demand-pull inflation (Demand Pull Inflation) Consumers want to buy, but the market lacks enough goods and services. Sellers raise prices, similar to an auction game. When goods are scarce, prices soar.

2. Cost-push inflation (Cost Push Inflation) Raw materials become expensive, such as oil, gas, steel, causing producers to raise their prices. This signals a global interconnected problem.

3. Excessive money printing (Printing Money Inflation) When the government releases too much money into the system, the value of money decreases.

Numbers speak louder than words: The history of inflation impact in Thailand

• 1974: Inflation exceeded 24.3% due to the Middle East war, causing oil prices to spike
• 1998: Surpassed 7.89% due to the Thai baht depreciation
• 2022: Reached 7.10% because of the Russia-Ukraine war

In January 2024, the inflation rate decreased to 1.11%, the lowest in 35 months, due to measures to reduce energy costs and increased fresh vegetable supplies in the market.

The impact of inflation on the economy and the general public

Cost of living pressure

Look at essential goods price tables:

• Red pork: 137.5 baht (2021) → 133.31 baht (2024)
• Chili peppers: 45 baht (2021) → 50-250 baht (2024)
• Diesel oil: 28.29 baht (2021) → 40.24 baht (2024)

People have to spend more, but their purchasing power shrinks. Small businesses face increased challenges.

The dangerous stagflation

When inflation is high but the economy does not grow, we enter stagflation (Stagnation + Inflation). Employment drops, entrepreneurs make low profits, businesses close, and unemployment rises. This is an undesirable scenario for everyone.

How to adapt when inflation occurs

1. Let your money work

Interest on savings is low, so invest in assets that offer higher returns, such as stocks, mutual funds, or real estate.

2. Avoid unnecessary debt

Debt value decreases with inflation, but debt that does not generate income is a burden. Reduce expenses accordingly.

3. Avoid holding cash

Money in drawers is not safe. Consider saving gold, bonds, or land. These assets move in line with inflation.

4. Generate additional income

Your main job may not increase your income significantly. Seek side income opportunities.

Investment opportunities when inflation occurs

Bank stocks: Benefit from higher interest rates, as the interest margin increases.

Gold: Moves upward with inflation. CFD trading offers opportunities for both bullish and bearish trades.

Real estate: Rental prices increase with inflation, providing relatively stable returns.

Floating rate bonds or inflation-linked bonds: Adjust interest according to inflation.

Food sector stocks: Food is a necessity; prices tend to rise and remain relatively stable.

Inflation vs. Deflation: How different are they?

• Inflation: Prices rise, the economy grows, and some benefit.
• Deflation: Prices fall, the economy stagnates, and everyone suffers.

Both extremes are dangerous. The best economic condition is moderate inflation (2-3%).

Summary: Keep up with the news

The impact of inflation is unavoidable. However, it does not mean you have to be defeated by it. Through education, adaptation, and smart investing, you can turn the impact of inflation into an opportunity. Stay informed about economic news to be ready for an ever-changing system.