I’ve noticed that many people are still really confused about inflation. Honestly, it’s something that affects all of our money—whether you’re an investor or just an ordinary person—so I’d like to share a clearer understanding of inflation and deflation.

Inflation, put simply, is the continuous rise in the prices of goods and services. The longer time goes on, the less we can buy with the money we have. For example, a few years ago, 50 baht could buy several plates of rice, but now it can buy only one plate. That’s how inflation makes things more expensive.

Why does inflation happen? It mainly comes from three main reasons. First, demand for goods increases so much that it exceeds what can be produced, leading sellers to raise prices. Second, production costs become more expensive—such as for oil, gas, steel, and copper—so producers have to adjust their prices accordingly. Third, the government prints a large amount of money, which increases the money supply in the system.

In the current situation, global inflation is caused by many factors. The global economy is recovering from a crisis, but demand for goods is rising rapidly while supply hasn’t caught up yet. Loose/weak supply chain issues, as well as higher energy and commodity prices, have become major problems. For example, crude oil prices, which were at a low point in 2020, surged sharply when countries reopened.

Inflation has both good and bad effects. The good side is that businesses can raise prices, leading to higher profits. Employment increases, and the economy expands. Borrowers benefit because they repay their debts with money that has less value. The bad side is that consumers have less purchasing power, the cost of living rises, and people with fixed incomes are disadvantaged because their salaries increase more slowly than inflation. Creditors are also at a disadvantage.

If inflation becomes too high, it enters Hyper Inflation, or deflation—which is the opposite of inflation. Deflation is when prices of goods fall continuously, demand for purchases decreases, or the money supply in the system is not sufficient. If deflation lasts for a long time, producers don’t want to produce, businesses shut down, people lose their jobs, and the economy stagnates. Both conditions, when severe and prolonged, are dangerous for economic growth.

According to Thailand’s CPI data for January 2567, the consumer price index was 110.3, up 0.3% from the previous year. The overall inflation rate (YoY) decreased to 1.11% because energy prices and agricultural goods prices fell, but prices of other products moved in a normal direction.

The impact on our daily lives is that prices for meat, pork, chicken, eggs, vegetables, cooking oil, and LPG have all risen over the past few years. For example, red pork was 137.5 baht per kilogram in 2564, but it rose to 205 baht in 2565. Cooking gas rose from 318 baht to 423 baht. The impact on businesses: when goods become more expensive, sales decrease, and production costs also increase. Some businesses may have to slow down production, reduce investment, or lay off employees. The impact on the country: long-term development of production capacity may slow down. People may turn to speculation in high-risk assets, accumulating problems related to asset bubbles.

When inflation is coming, how should we adapt? First, plan your investments well. Put your money into assets that offer returns higher than bank deposit interest, such as stocks, mutual funds, and real estate. Second, avoid taking on debt that doesn’t generate income, and plan your spending carefully. Third, invest in stable assets such as gold, which always has intrinsic value. Fourth, closely monitor economic news because inflation affects everyone.

During inflation, which stock sectors benefit? Bank stocks are a good option because banks earn income from loan interest—when interest rates rise, profits increase. Insurance stock sectors are also favorable because they invest in debt instruments whose returns increase along with inflation. Food stock sectors should also be considered because they are essential products with pricing power. Gold is a classic choice because its price tends to move in the same direction as inflation. Trading gold CFDs provides opportunities to speculate in both bullish and bearish markets. Floating Rate Bonds or Inflation Linked Bonds are also options because their interest rates are adjusted according to inflation.

In summary, inflation at an appropriate level is good for the economy—it helps the economy expand and grow. But if it becomes too high, it turns into Hyper Inflation, causing the economy to collapse. This is different from deflation, where the price level falls and is harmful to growth. Investors can generate profits from inflation by choosing to invest in stock groups and assets that benefit, but they must always keep up with economic news so they don’t miss major events that affect inflation and our investments.