## Inflation Is Coming: What Investors Need to Know

If you notice prices in the market steadily rising, you are experiencing "inflation." This phenomenon is not just about prices but reflects fundamental changes in the economy that affect everyone—from ordinary consumers to seasoned investors.

### **What is (Inflation)?**

Simply put, **inflation** is the continuous increase in the price levels of goods and services. The consequence is that your current money buys less than before because the value of money is gradually eroded.

**Real-life example:** Five years ago, a bowl of rice with curry cost 30 baht. Today, it might cost 50 baht. With 100 baht, you could buy 3 plates then, but now only 2. That’s inflation.

Inflation is not just a natural expansion of the economy but also a key indicator that heavily influences investment decisions in the stock market. When the central bank announces that inflation rates are rising or falling, the stock market usually responds immediately.

### **Who Benefits from Inflation? Who Loses?**

**Beneficiaries:**
- Entrepreneurs and business owners, because they can naturally raise prices in line with inflation.
- Food, gas, and steel companies that can adjust prices according to rising costs.
- Shareholders and banks, as they benefit from higher interest rates.

**Those at a disadvantage:**
- Salaried workers, because their wages often increase at a rate lower than inflation.
- Cash savers, as the value of their money decreases over time.
- Creditors and lenders (because they receive repayments worth less).

### **What Causes Inflation?**

**1. Demand-pull inflation (Demand Pull Inflation)**
Economic recovery leads to increased consumer spending, causing sudden demand for many goods. If producers cannot keep up or produce enough, prices rise.

**2. Cost-push inflation (Cost Push Inflation)**
Rising oil prices, expensive gas, and costly meat mean producers bear higher costs, prompting them to raise prices.

**3. Money supply expansion (Printing Money Inflation)**
When the money supply in the system increases beyond natural growth, money becomes less valuable.

**Current real causes:**
Post-pandemic economic recovery has led to "revenge spending," but production capacity is insufficient. Supply chain disruptions in transportation have also pushed up prices of commodities like oil and natural gas.

Thailand has not yet entered a stagflation phase ()where inflation is high but economic growth stalls###, but preparations are advisable.

( **Inflation Data in Thailand for 2023-2024**

According to the Office of Trade Policy and Strategy, the Consumer Price Index )CPI( in January 2024 was 110.3, up 0.3% from the previous year. The year-on-year inflation rate )Year-on-Year( was 1.11%, a significant decrease from last year.

Between December 2023 and January 2024, the )Month-on-Month### price index increased by 0.02%, mainly driven by non-food groups such as fuel, electricity, and transportation fares, while fresh food prices continued to decline.

Historically, Thai inflation peaked at 24.3% in 1974 due to the Middle Eastern oil crisis, rose to 7.89% in 1998 after the Thai baht depreciated heavily, reached 5.51% in 2008 amid the global food crisis, and recently hit 7.10% in 2022 due to the Russia-Ukraine war.

( **Who Gains Wealth from Inflation?**

PTT )PTT### is a clear example. In the first half of 2022, the company earned over 1.6 trillion baht in revenue and a net profit of more than 64 billion baht, growing by 12.7%, driven by soaring oil prices. Food companies that can raise prices on meat and fruits also benefit, as do banks from increased interest rates.

( **Advantages and Disadvantages of Inflation**

**Advantages:**
- Businesses can raise prices, increasing profits and employment, leading to economic expansion.
- Unemployment rates decrease as labor demand rises.

**Disadvantages:**
- Rapid inflation )###Hyperinflation( causes consumers to stop buying, businesses to struggle, layoffs increase, and unemployment rises.
- Purchasing power declines, as savings lose value over time.
- The financial system becomes unstable, prompting citizens to speculate in high-risk assets.

) **Inflation vs. Deflation: What's the Difference?**

**Inflation:** Prices rise, money loses value, economy expands.
**Deflation:** Prices fall, demand decreases, economy stagnates.

Both are harmful if severe and prolonged. However, moderate inflation ###2-3%( is considered normal for a growing economy.

) **What Does Inflation Affect?**

**On general income:**
Living costs increase—meat, vegetables, fuel, gas, and electricity all go up. For example, the price of black pork in 2021 was 137.5 baht/kg, and in 2024 it is 133.31 baht/kg, still higher than two years prior. Egg prices in 2021 were 4.45 baht per egg, and in 2024, 3.9 baht per egg—slightly lower but temporary.

**On businesses:**
Higher costs may reduce sales, and some companies might need to lay off employees.

**On the country:**
Investment in industrial sectors slows, and long-term economic development is affected.

( **How to Measure Inflation**

Every month, the Office of Trade Policy and Strategy collects data on 430 items to calculate the **Consumer Price Index )CPI(**. The increase in CPI compared to the previous year indicates the inflation rate.

The Bank of Thailand )(uses CPI as a target for monetary policy.

) **How to Prepare for Inflation**

**1. Invest proactively, don’t wait**
Low deposit interest rates are discouraging. Invest in assets with higher returns, such as stocks, mutual funds, or real estate.

**2. Avoid unproductive debt**
Credit card debt and non-essential purchases should be paid off to reduce interest costs. Focus on cutting unnecessary expenses.

**3. Invest in stable assets**
Gold and real estate have intrinsic value and do not depreciate over time.

**4. Keep track of economic news regularly**
Inflation directly impacts investments. Monitoring monetary policy movements and central bank announcements is crucial.

( **What to Invest in During Inflation**

**High-interest savings accounts:**
Fixed deposit accounts for 12 or 36 months offering higher rates than regular savings.

**Real estate funds:**
Rental income adjusts with inflation, less volatile than stocks, and provide steady dividends.

**Floating Rate or Inflation-Linked Bonds:**
Interest rates adjust according to economic conditions, offering appropriate returns.

**Gold:**
Price movements tend to track inflation. When inflation is high, gold prices tend to rise. If trading CFDs on gold, investors can speculate on price increases and decreases without owning the physical asset.

**Advantageous stock sectors:**

| **Stock Sector** | **Reason** |
|---|---|
| **Banks** | Rising interest rates increase profit margins. |
| **Insurance companies** | Benefit from high-yield bond investments. |
| **Food companies** | Can raise prices in line with inflation. |
| **Energy companies** | Higher oil and gas prices boost profits. |

) **Summary: Inflation for Investors**

Inflation is a natural part of economic growth, but if it becomes hyperinflation ###(it can lead to a crisis. Currently, global inflation is decreasing, but risks remain due to geopolitical tensions and supply chain issues.

Policymakers must balance controlling inflation with avoiding economic slowdown.

**Most importantly:** Investors need to understand inflation and leverage it to generate profits through careful investments, rather than passively waiting for money to lose value.