Knowledge about inflation everyone should know: meaning, causes, and ways to cope

What is Inflation? Why Should We Care

Inflation is an economic phenomenon where the prices of goods and services tend to increase continuously. The consequence is that the value of money decreases, requiring us to spend more to buy the same item.

Simply put: when inflation occurs, things become more expensive and our money weakens. Another way to say it is “purchasing power” (purchasing power) of money declines.

###Real-life Example

Mr. A had 50 baht ten years ago. He could buy several bowls of rice. But today, with the same 50 baht, he can only buy one bowl. Looking ahead another 20-30 years, rice prices might soar to 100 baht per bowl. This is not due to changes in rice quality but because of inflation.

Causes of Inflation

###Three Common Causes

1. Demand exceeds supply (Demand Pull Inflation)

• Consumers want to buy more goods and services
• But producers cannot produce enough
• Sellers raise prices to take advantage

2. Rising production costs (Cost Push Inflation)

• Raw material costs increase, e.g., oil, gas, minerals
• Labor costs rise
• Producers raise prices to maintain profits

3. Excess money supply in the system (Printing Money Inflation)

• The government prints a large amount of money
• Money supply exceeds demand
• Prices of goods increase accordingly

###In the current global context, the world community faces:

The global economy is recovering post-COVID crisis, but with conflicts: people’s purchasing power increases (partly due to increased savings during lockdowns), leading to “revenge spending” — buying to vent frustration. However, production remains sluggish because:

• Container shortages for shipping
• Global commodity prices rise (crude oil, natural gas, steel, copper)
• Chip shortages
• Disruptions in employment

IMF data from January 2024 shows that the global economy is expected to grow by 3.1% this year (less than the historical average) due to tight monetary policies, reduced financial support, and low productivity growth.

Who Benefits and Who Loses from Inflation

###Beneficiaries

✅ Entrepreneurs and business owners - can raise prices as the market accepts ✅ Shareholders and investors - assets appreciate ✅ Banks and lenders - interest rates rise ✅ Borrowers - debt value decreases (pay less in real terms)

###Those who lose

❌ Fixed-income earners - wages increase but not enough to keep up with inflation ❌ Money savers - the value of money decreases ❌ Debtors - receive money back but with less value

Inflation Indicators: How Is It Measured?

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

Changes in CPI compared to previous years represent the inflation rate used as a target by the central bank.

###Latest statistics (January 2024)

• Consumer Price Index: 110.3 (Base 2019 = 100)
• YoY Inflation Rate: 1.11% (decreased from last year)
• MoM Change: +0.02%

Inflation has decreased for four consecutive months (the lowest in 35 months) due to falling energy prices from government cost-cutting measures and continuous drops in fresh food prices.

Inflation vs. Deflation: What’s the Difference?

Worst-case scenario: Stagflation — high inflation with stagnant economy.

At the extreme, inflation becomes Hyperinflation, a dangerous state that can collapse the economy.

Effects of Inflation on Daily Life

(For the general public

📉 Higher cost of living - goods become more expensive, requiring more money 📉 Reduced purchasing power - the same amount of money buys less 📉 Harder living conditions - essential expenses increase

)For entrepreneurs

📉 Increased production costs - may lead to reduced production or layoffs 📉 Decreased sales - as customers buy less 📉 Investment slowdown - uncertainty about the future

(For the country

📉 Slower economic development - investment declines 📉 Higher unemployment rate - when businesses shut down 📉 Financial imbalances - household debt problems, asset bubbles

)See how prices of goods change over time

Food and energy prices significantly increased during this period.

Thailand’s Inflation History: Lessons from the Past

• 1974: Surpassed 24.3% — caused by Middle East conflicts
• 1980s: High inflation — due to Iran-Iraq war
• 1997-1998: 7.89% ###Economic crisis, Baht devaluation###
• 2008: Surpassed 5.51%
• May 2022: 7.10% — caused by Russia-Ukraine war

Companies Benefiting from Inflation

Example: PTT Public Company Limited ###Public###

In the first half of 2022 (year of high inflation), the company and its network reported:

• Revenue: 1,685,419 million THB
• Net profit: 64,419 million THB
• Growth: 12.7% compared to the previous year

Reason: soaring oil and gas prices = huge profits

Pros and Cons of Inflation

(Advantages ✅

• Economic growth - high demand, business expansion, more employment
• Lower unemployment - due to increased labor demand
• Money circulation - more spending

)Disadvantages ❌

• Higher prices - reduced purchasing power
• Financial instability - unstable business environment
• If hyperinflation occurs - economy collapses

How to Cope When Inflation Approaches

(1. Invest wisely

During inflation, deposit interest rates are low, so:

• Invest in stocks for higher returns
• Invest in mutual funds
• Invest in real estate

)2. Avoid unnecessary debt

• Plan expenses strictly
• Don’t buy unnecessary items
• Be mindful in financial decisions

###3. Invest in stable assets

• Gold - intrinsic value, does not depreciate, price rises with inflation
• Real estate - rental income follows inflation, less volatile than stocks
• Floating rate bonds - Inflation-linked bonds

###4. Stay informed

Inflation affects investment decisions, financial security, and daily life. Keep updated to prepare for it.

Which stock groups benefit from inflation?

Summary: Inflation is a topic everyone should understand

Inflation isn’t all bad; if moderate, it can promote economic growth, employment, and income. But if it spirals into Hyperinflation, it becomes a threat to livelihoods and the entire economy.

Difference from deflation: Deflation is the real enemy of the economy. When prices fall continuously, consumers stop buying, businesses cut production, and the economy stagnates.

As investors and consumers, understanding inflation helps plan finances and investments wisely. Always stay updated on economic news.