By 2026, it seems the economy will undergo a transformation. Prices are already high, but now there's a new topic gaining more and more attention: deflation, which is a situation where prices continuously decline and can be more dangerous than inflation.

Deflation is the opposite of inflation. It occurs when the CPI is negative. It's not just a temporary price drop for some goods, but a broad decline across the entire economic system. Many people think that falling prices are good, but in a macroeconomic sense, it's a sign that consumers lack purchasing power and are afraid to spend money. If left unchecked, it can lead to an economic recession.

There's a lot of confusion between disinflation and deflation, which are different. Disinflation is when prices are still rising but at a slower rate—for example, inflation dropping from 5% to 2%. Deflation, on the other hand, is when prices actually fall, such as -1% or -2%, which increases the purchasing power of money.

Looking at history reveals the risks. During the Great Depression from 1929 to 1933, prices in the U.S. fell by 27%. Banks failed, the money supply shrank by 30%, and unemployment reached 25%. It was terrifying. Japan experienced a similar situation; after the bubble burst in 1990, it lasted over 30 years. Japanese companies focused on debt repayment rather than investment. Japanese people got used to falling prices, stopped spending, and discount stores grew rapidly, while wages stagnated.

Deflation occurs from two sides. One is demand-side deflation, which happens when people worry about losing their jobs, increase savings, and cut back on spending. Money circulation slows down, businesses can't sell their products and have to lower prices, creating a vicious cycle. The other is supply-side deflation, driven by technological advances like AI and robots reducing costs, or cheap Chinese goods flooding the market.

Thailand is facing this situation. GDP in 2026 is expected to grow only 1.5-1.6%, the lowest in 30 years. An aging society means lower consumption. Household debt is at 85% of GDP, holding back purchasing power.

The impact of deflation is a vicious cycle: people expect prices to fall further, so they delay purchases. Sales decline, businesses lower prices and cut production, layoffs increase, unemployment rises, and sales drop further. Debt becomes a monster—if you owe 1 million baht and your income drops by 3%, that debt becomes even more burdensome. Stock markets also see reduced profits, falling share prices, and real estate prices decline accordingly.

In such times, investing requires a different approach. During deflation, "Cash is King," not trash. Government bonds are ideal because when interest rates fall, bond prices rise, and real returns become attractive. Holding cash or money market funds helps preserve capital and prepares you to buy good assets at lower prices once the crisis ends.

Stocks should be defensive—such as consumer staples, utilities (electricity, water), healthcare—because people still need essentials regardless of the economic climate. Gold also remains bright; when trust in banks wanes, central banks buy gold, and interest rates decline.

For aggressive investors, 2026 presents opportunities if you're brave. The stock market often declines, making it possible to profit from downturns. Bonds and gold all have potential. The key is understanding what deflation really means and how to prepare for it.

In summary, 2026 is not a year to wait but a year to prepare. Adjust your portfolio toward bonds, gold, or short-selling strategies—not just to survive but to profit while others panic.