Is there something that many people still do not fully understand about the fact that in 2026, our economy is facing a new risk called "deflation," which is different from inflation that everyone has been worried about all along? Deflation occurs when prices of goods actually decrease. It sounds like a good thing, but in macroeconomics, it is a warning sign that the economy is heading toward a downturn.

Deflation happens when the general price level in the economy continuously declines, measured by a negative Consumer Price Index (CPI). This is different from temporary price drops; it is a widespread change that reflects real problems in the economic system.

A common misconception is confusing disinflation with deflation. Disinflation means the rate of inflation is slowing down, such as from 5% to 2%, but prices are still rising. Deflation, however, means prices are actually falling, with negative rates like -1% or -2%. This distinction is very important because the impacts on the economy are completely different.

Looking back in history, we see severe examples of deflation during the Great Depression from 1929 to 1939, when prices in the U.S. fell by a cumulative 27% over four years due to stock market crashes and bank failures. The money supply shrank by over 30%, and unemployment soared to 25%. Japan experienced persistent deflation for 30 years after the bubble burst in 1990, with falling asset prices, companies prioritizing debt repayment over investment, and people becoming accustomed to falling prices, which led to delayed spending.

The causes of deflation are multifaceted. Sometimes it results from decreased demand—when people fear losing their jobs or income drops, they save more and spend less, reducing money circulation. Businesses see declining sales and must lower prices, creating a vicious cycle that is hard to break. Sometimes it stems from supply-side factors, such as technological advances and AI reducing production costs, or cheap Chinese goods forcing producers to cut prices.

Thailand is currently facing factors that could lead to deflation. GDP is expected to grow only 1.5-1.6%, the lowest in 30 years. Our society is aging, with older populations consuming less, and household debt exceeds 85% of GDP, forcing people to use income to pay debts rather than spend.

The impact of deflation on the economy is severe. When people believe prices will continue to fall, they delay purchases today, leading to lower sales. Businesses must cut prices and production, resulting in layoffs. Unemployed people have less money to buy, further reducing sales—a vicious cycle. Debt becomes a monster in deflation; the real value of debt increases. If you owe 1 million baht but your income drops by 3%, that debt becomes an even heavier burden. The stock market also declines as corporate profits shrink.

What should you invest in during deflation? In an inflationary era, we say "Cash is Trash," but now "Cash is King." Government bonds are a strong fortress. When central banks cut interest rates to stimulate the economy, bond prices rise. Additionally, in deflation, the real return on bond yields increases significantly. Holding cash or parking funds in money market funds is good—it preserves your principal value and keeps ammunition ready to buy assets at lower prices when the crisis ends.

For stock investments, avoid cyclical stocks and focus on essentials—such as consumer staples, utilities, or healthcare. Gold is also attractive; although it is known for hedging inflation, it is a safe asset during severe deflation.

For investors seeking to profit from the crisis, short selling might be an option. During deflation, stock markets tend to decline, so you can open short positions to profit from falling prices or speculate on bonds and gold with high liquidity.

Overall, 2026 will be a test for those who are prepared. Understanding that deflation is no longer a distant concept will determine your financial fate. Adjusting your portfolio, accumulating safe assets, or employing smart trading strategies are all ways to not only survive but also profit while others panic.