Inflation is rising, but it's still manageable. Investment tips to survive a volatile economy

What is inflation? Why should we worry

Inflation is the phenomenon where the prices of goods and services continuously rise. The consequence is that the money in our pockets becomes less valuable. This means that, in the past, 50 baht could buy a lot, but today, the same 50 baht can only buy a few items.

The most obvious impact? Reduced purchasing demand because goods are more expensive, and people’s money remains the same, making the purchasing power of the general public simpler.

Why is inflation rising lately?

It’s not without reason. Currently, there are three main drivers causing inflation to spike:

First: Demand exceeds supply After the COVID crisis, countries gradually reopened. People are eager to spend money without restraint (Revenge Spending), but production can’t keep up.

Second: Production costs have increased significantly The prices of crude oil, natural gas, and various metals on the global market have gone up. These are inputs for countless products. Manufacturers are not benefiting; they have to lay off workers, cut investments, and shut down production.

Third: Supply chain disruptions Shipping containers are insufficient, semiconductor shortages, and products are stuck everywhere, leading to price hikes.

The total result = inflation reaches an all-time high.

How is inflation measured? Let’s look at the figures

Every month, the Thai Ministry of Commerce collects data on the prices of 430 items and calculates the Consumer Price Index (CPI). The increase in CPI year-over-year is what we call the inflation rate.

Latest statistics (January 2024):

• Consumer Price Index = 110.3
• YoY inflation rate = 1.11% (decreased from last year)
• The lowest in 35 months

Why? Because energy prices have continued to decline due to government measures, and fresh vegetables have decreased because of increased harvests.

But looking at the following price table, we see that living remains tough:

From this table, we see that the main goods we buy daily are still getting more expensive, making ordinary people poorer.

Who benefits? Who is at a disadvantage?

(Beneficiaries of inflation

Entrepreneurs, traders, investors - They can dodge inflation because they can adjust their prices accordingly. For example, PTT in the first half of 2022 earned 1,685,419 million THB with a net profit of 64,419 million THB )up 12.7% from last year### - but employees did not benefit; rising oil prices are the main reason.

Shareholders, gold holders - These assets adjust with inflation; the higher the inflation, the higher the asset prices.

(Disadvantaged by inflation

Salaried workers - Salaries increase little, inflation rises significantly, purchasing power decreases, leaving no way out.

Debtors / depositors - If inflation is 3% but banks only pay 1% interest, heavy borrowing leads to loss of money value.

Inflation vs. Deflation: What’s the difference?

Inflation: Prices go up → Demand increases → Economic expansion )like futures###, but if inflation is severe (Hyper Inflation), it becomes a problem.

Deflation: Prices go down → Demand decreases → Producers are reluctant to produce → Lay off workers → Unemployment rises → Economy collapses, worse.

Summary: Moderate inflation is good for the economy, but deflation is definitely bad.

Effects of inflation on the economy and daily life

(Personal level

• Cost of living increases
• Purchasing power decreases
• Income cannot keep up

)Business level

• High costs, reduced sales = profit loss
• Some businesses must halt investments
• Unemployment rises

###National level

• GDP slows down
• Price base risks Stagflation ###high inflation but stagnant economy###
• Overall economic temperature risks

Forecast from IMF (January 2024):

• Global growth of 3.1% in 2024
• Possibly higher due to US resilience
• But still below historical averages due to tight monetary policies

What to invest in when inflation rises?

( 1. High-interest deposits May not be very attractive, but with high inflation, the interest earned is also high. Choose fixed deposits )12-36 months### for safety, but patience is required.

( 2. Floating Rate Bonds or Inflation-Linked Bonds Interest adjusts with inflation; if inflation rises, returns increase. Moderate risk.

) 3. Gold An asset whose price generally moves with inflation. The higher the inflation, the more expensive gold becomes. Can speculate on both rising and falling prices via CFD without actual purchase.

4. Stocks benefiting from inflation

Bank stocks - Profits from interest margins; higher interest rates mean higher bank profits.

Insurance stocks - Invest in government bonds; returns develop with inflation.

Food stocks - Demand for food and essentials never drops; prices go up, and profits follow. They act as non-price-elastic goods.

5. Real estate

Rents tend to follow inflation; high stability, less volatile.

Four tips when inflation rises

1. Diversify your investment plan - Don’t keep money outside banks; let your money work for you. Invest in assets with higher returns.

2. Avoid unproductive debt - Essential expenses only. Do not borrow for unnecessary purchases.

3. Invest in safe assets - Gold, bonds, real estate are safe havens.

4. Keep updated with news - Inflation affects everything—from stock prices, interest rates, to government policies. Follow closely.

Cycle summary

Inflation is not an enemy if managed properly at a moderate level. It helps economic growth. But severe inflation, like Hyper Inflation, is a real problem.

The impact of inflation is not evenly distributed. Business owners, investors, and asset holders benefit, but salaried workers, debtors, and the general public suffer.

Final word: Investors should use inflation to their advantage, not just wait for it to pass. Invest at the right moments, choose assets flexible to inflation changes, and stay informed to generate profits.