Inflation is squeezing your wallet. How to invest to survive?

If you feel that prices are continuously rising and items purchased 2-3 years ago have increased in price by over 30-50%, it is likely due to the inflationary forces at work.

What is Inflation?

Inflation is when the economic system deviates in a way that causes your money to lose value. Simply put, 2 years ago, 50 baht could buy 5 plates of rice; today, it can only buy 1-2 plates because of inflation. Therefore, rising prices of goods and services in the market are the clearest signs of inflation.

It’s not just ordinary people who are affected; many may not realize that companies like MGC (business operators such as PTT, etc.) are also squeezed with little profit. When interest rates are low, they need to invest more heavily to ensure their investments do not lose value.

Who Benefits and Who Loses from Inflation?

Beneficiaries:

• Merchants and business owners who can raise their prices
• Shareholders and assets with pricing power
• Banks: the higher the interest rate, the greater the profit

Disadvantaged:

• Employees: wages increase but less than inflation
• Cash savers: the value of money is eroding

Where Does Inflation Come From?

1. High demand for purchases, but stock runs out
After economic recovery, people in France and elsewhere spend heavily (Revenge Spending), but factories can’t keep up with demand, leading sellers to raise prices.

2. Production costs are already high
Oil, gas, steel, copper prices soar globally, and producers don’t want to bear the burden, so they increase their prices.

3. Supply chain problems
Shortage of containers and chips leads to volatility in manufacturing and transportation systems.

4. The government prints more money
Increasing the money supply causes the currency to depreciate.

How is Thailand’s inflation rate currently?

As of the latest movement, last year, Thailand’s inflation peaked at 7.10% in May 2022 due to the Russia-Ukraine war. Recently, (January 2024), it decreased to 1.11% because:

• Energy prices have softened, thanks to government measures
• Fresh vegetables and meat prices have fallen due to abundant supply in the market

Inflation vs. Deflation: Clear Differences

What are the impacts when inflation occurs?

On the general public:

• Prices rise, money becomes tight, and purchasing power declines
• Reduced purchasing power

On business owners:

• Sales decline as consumers buy less
• Costs increase, squeezing profits
• Some may need to lay off employees

On the country as a whole:

• Economic slowdown or stagnation
• Household debt rises
• Development projects slow down

How to adapt to inflation and invest accordingly

Invest in sectors that benefit:

• Bank stocks: higher interest rates mean higher profits
• Insurance stocks: good returns from bonds
• Food stocks: essential goods that can raise prices

Invest in stable assets:

• Gold: prices tend to rise with inflation, considered safe
• Real estate: less volatile; rental income adjusts with inflation
• Floating Rate Bonds: interest rates adjust according to actual rates

Other strategies:

• Avoid unnecessary debt
• Spend less, save more
• Keep an eye on economic news; stay alert

Essential goods price table in Thailand

Summary: Be cautious about inflation, not alarmed

Normal inflation (around 2-3% per year) is typical and beneficial for growth. However, if it exceeds that and leads to “Hyperinflation,” it becomes a major issue.

The causes of inflation currently are not hopeless; instead, understanding and finding ways to profit from it is key. Whether through investing in stocks, gold, or real estate, all can help increase your wealth. At the very least, prevent your money from sitting idle and losing value.

Stay informed about economic news to be prepared for changes. Remember, understanding inflation is essential for investors to make wise investment decisions.