Yesterday, I looked at Thailand’s CPI data and thought that many people might not understand yet what inflation is, or why it affects our lives today.

Simply put, inflation is a situation where the prices of goods and services keep increasing. From another angle, it’s the value of money falling. Back when we used 50 baht to buy several plates of rice, now it can buy only one plate. I’ve noticed that this kind of issue affects investors’ investment decisions quite significantly, because high or low inflation directly impacts the stock market.

Inflation can happen for many reasons. The first reason is that demand increases, but production can’t keep up, so sellers raise prices. The second reason is that production costs become more expensive—whether due to crude oil, natural gas, or supply chain problems—so producers have to pass those higher costs on by raising prices as well. The third reason is that the government prints more money, increasing the amount of money in the system, which then drives prices up accordingly.

For the current situation, the global economy is recovering, but demand for goods is surging so much that supply can’t catch up. On top of that, there are problems with a shortage of semiconductor chips, a lack of shipping containers for transportation, and energy prices keep rising. All of these factors have pushed inflation to unprecedentedly high levels.

You can see that there are groups who benefit from inflation: business owners and traders, because they can raise the prices of goods. But salaried employees are unhappy, because even though their wages increase, they increase by less than inflation. The result is that the purchasing power of money decreases.

Thailand experienced very high inflation—from 25.17 to 24.3 percent—because oil prices surged due to the war in the Middle East. Most recently, in May 2565, it broke through 7.10 percent because of the Russia-Ukraine war.

If inflation rises too much until it becomes Hyper Inflation, it means “deflation,” which is the opposite of inflation—prices of goods fall continuously. Producers don’t want to produce, and the economy slows down. Both inflation and deflation are dangerous to the economy.

Inflation affects us in many ways. Ordinary people have less purchasing power, and the cost of living increases. Businesses may have to slow production or reduce employees. The country may grow more slowly—these are worrying developments.

However, inflation at a reasonable level (around 2–3 percent) is good for the economy. It helps the economy grow, creates more jobs, and improves the circulation of money in the system.

When inflation happens, investors should adjust and invest in assets that offer returns higher than inflation—such as stocks, mutual funds, real estate, and gold—which tend to move in the same direction as inflation. Avoid taking on unnecessary debt, and plan your spending carefully.

Stock sectors that benefit from inflation include banking and insurance, because interest rates rise and their profits increase as well. Food stocks are also interesting, because food is something people have to use, and they have the power to set prices.

Finally, inflation is something that needs to be monitored, because it affects our financial decisions—whether it’s choosing investments, saving money, or planning our lives. The more we understand inflation, the better prepared we’ll be to handle changing economic conditions.