What exactly is inflation, and why does it affect our lives?

Have you noticed that the prices of various goods keep rising? Meat, gas, oil, food supplies—all are more expensive than before. This is called inflation, which is an economic condition where the price levels of goods and services tend to increase continuously. Or simply put, our money's value decreases, requiring more money to buy the same item.

Think about it: if previously 50 baht could buy multiple bowls of rice, today the same 50 baht only buys one bowl. That’s a loss of our purchasing power. This problem impacts investors’ decision-making because it relates to how much our money will be worth in the future.

Inflation can occur for several reasons. First, consumer demand increases. When the economy recovers after a crisis, people have savings and want to spend, but the market doesn’t have enough goods to meet that demand. The result is rising prices.

Another cause is increased production costs, especially for commodities in the global market, such as natural gas, crude oil, steel, and copper. When costs go up, producers must raise their prices accordingly. Additionally, supply chain issues, like shortages of shipping containers, make transportation more expensive.

This is important: the current inflation mostly results from a combination of multiple factors. The global economy is recovering despite challenges, but central banks’ monetary policies remain tight, leading to higher interest rates, which reduce demand.

According to IMF data in early 2024, the global economy is expected to grow by 3.1%. Although slightly higher than previous forecasts, it’s still below the historical average because tight monetary policies continue to impact growth.

For Thailand itself, in January 2024, the consumer price index decreased by 1.11% compared to the previous year, marking the lowest level in 35 months. This is due to falling energy and fresh food prices, which have increased in supply. However, risks remain from geopolitical tensions.

The impact of inflation on daily life is very clear. The cost of living rises, and our purchasing power diminishes. People with fixed incomes are most disadvantaged because their salaries increase at a slower rate than inflation. Meanwhile, small business owners or traders can raise their prices, gaining an advantage.

However, if inflation spikes rapidly, problems can reverse. Consumers buy less, sales decline, costs stay high while income drops, leading to reduced production and layoffs. The economy may enter stagflation—a situation nobody wants.

Deflation, the opposite of inflation, occurs when prices of goods and services continuously fall. Demand decreases, the money supply in the economy is insufficient, producers are reluctant to produce, and the economy stagnates. Both severe inflation and deflation, if prolonged, are dangerous to economic growth and people’s livelihoods.

When inflation occurs, investors need to adapt by planning investments in high-yield assets such as stocks, mutual funds, or real estate. Avoid unnecessary debt, and invest in stable assets like gold. Keep regularly updated on economic news.

Sectors that benefit from inflation include banking and insurance stocks because higher interest rates increase their profit margins. Food stocks also benefit since food is a necessity; consumers will buy regardless of price increases.

In summary, inflation is an economic condition that must be closely monitored because it affects our investment decisions and daily lives. Moderate inflation can be good for the economy and employment, but when it gets too high, damage ensues. Investors should understand the difference between inflation and deflation to plan their finances and investments appropriately.