## Amid Economic Adjustments: What Is Inflation and How Can We Cope?

Today, many people probably feel that their money is shrinking rapidly. Items that could be purchased last month now require more money. This is inflation—a macroeconomic problem that affects everyone's daily life. To find ways to survive, adjust finances, and even invest for returns, let's understand this issue more deeply.

### Where Does Inflation Come From

**Inflation** is a condition where the prices of goods and services tend to rise continuously. In other words, the real value of our money diminishes over time. Last year, 100 baht could buy 10 items, but this year, the same amount only buys 8. This is because inflation is eroding our purchasing power.

The causes of inflation in the economy can be summarized into three main points:

**First: Excess demand compared to supply** When consumers want more goods than factories can produce, sellers have the power to raise prices. Everyone ends up paying more.

**Second: Rising production costs** Global prices for oil, gas, steel, and other raw materials have surged. Producers pay more to obtain goods, and these costs are passed on to consumers through higher prices.

**Third: Excess money in the economy** When the government or central bank releases large amounts of money, but the supply of goods does not increase proportionally, prices must rise to reach equilibrium.

Currently, all three factors are occurring simultaneously. The global economic recovery after the pandemic has increased demand for goods, but supply chains face issues—container shortages and semiconductor shortages have driven transportation costs up. For example, the price of crude oil jumped from record lows in 2021-2022 to record highs within a few months.

### Who Benefits and Who Loses

**Beneficiaries:**
Entrepreneurs, traders, and asset owners can often adjust their prices in line with inflation. Their incomes frequently grow faster than inflation. Shareholders, banks, and debtors also benefit because the real value of their repayments decreases.

**Those at a disadvantage:**
Salaried employees are most affected. Even if their wages increase, they often do so at a rate lower than inflation. People with fixed incomes, breadwinners, and cash holders all suffer in this environment.

### Consumer Price Index: CPI

Every month, Thailand’s Ministry of Commerce collects data on over 430 goods and services and calculates the Consumer Price Index (CPI). The increase in CPI compared to the previous year is called the "general inflation rate," which the Bank of Thailand uses as a key indicator.

Looking at data from October 2020 to January 2024, inflation decreased from a peak of 7.10% (May 2022) to 1.11% (January 2024). The high inflation during that period was driven by energy prices, food, and market tensions.

( UN Perspectives on Economic Remedies

According to the International Monetary Fund (IMF), the global economy is projected to grow 3.1% in 2023 and 3.2% in 2024. However, these growth rates are still below historical averages due to tight monetary policies, supply chain disruptions, and geopolitical tensions.

Signs indicate that the global economy is entering stagflation—a particularly difficult scenario where growth stalls but prices remain high. Such conditions can lead to layoffs, reduced investments, and business closures.

) Impact of Inflation on Daily Life

**Rising living costs:**
From late 2021 to 2024, pork prices soared from 137.5 baht/kg to 205 baht/kg, then dropped to 133.31 baht/kg. Chicken breasts increased from 67.5 baht/kg to 105 baht/kg. Chili peppers jumped from 45 baht/kg to 200 baht/kg. Liquefied petroleum gas (LPG) rose from 318 baht per tank to 423 baht per tank, among others.

These changes may seem small month-to-month, but over a year, they significantly increase household expenses.

**Reduced purchasing power:**
Consumers must choose between different goods and services because their money remains the same, but they need to buy more. The volume of goods purchased decreases, leading producers to earn less profit, which may result in reduced production, layoffs, and eventually business closures.

**Financial imbalance:**
When deposit interest rates are lower than inflation, people tend to speculate in high-risk assets like stocks and real estate, creating bubbles and further financial system issues.

### How to Hedge Against Inflation: Which Investment Is Best?

**1. Gold:**
Gold moves in tandem with inflation. When inflation rises, gold prices tend to increase. It is an excellent hedge for wealth preservation.

**2. Banking stocks:**
When interest rates rise, banks’ net interest margins expand, increasing their profits.

**3. Insurance stocks:**
Insurance companies invest in government bonds and debt instruments. Their yields increase when inflation is high.

**4. Real estate:**
Rental income tends to follow inflation. Investing in real estate funds can provide steady returns.

**5. Special bonds:**
Opt for Floating Rate Bonds or Inflation-Linked Bonds that adjust interest rates according to inflation changes.

( Deflation: The Worse Enemy of the Economy

If inflation is rising prices, **deflation** is falling prices. An economic contraction leads to decreased demand. Producers are reluctant to produce because profits shrink, resulting in higher unemployment and economic stagnation.

Both high inflation and high deflation are undesirable. A country needs moderate inflation—not so high as to cause hardship, but enough to support economic growth.

) Thailand and Its Inflation Challenges Over the Years

Historically, Thailand experienced a peak inflation rate of 24.3% in 1974 during the Israel-Arab war, which caused oil prices to spike. Later, inflation gradually stabilized between 2-5% for decades.

In 2022, the Ukraine crisis pushed inflation to 7.10%, the highest since 1998. This signals recovery, but close monitoring is necessary.

### Summary: How to Survive Inflation

1. **Stay Informed** - Understanding the causes of inflation helps you make better decisions.

2. **Plan Investments** - Invest in assets that yield returns higher than natural interest rates.

3. **Avoid Bad Debt** - Reduce borrowing and increase savings and investments.

4. **Choose Stable Assets** - Gold, quality stocks, and real estate.

5. **Adjust Income Strategies** - Those who can increase their income will survive better than those with fixed incomes.

**Inflation** is not the enemy of everyone but a test of financial wisdom. Those who understand and prepare well can turn this challenging environment into an opportunity.