Commodity price contraction: How does it affect wage rates and investment?

Falling Prices Are Not Good News; Most of Us Are Facing Deflation

When talking about the economy, there are two terms frequently mentioned: inflation and deflation. We often hear warnings about inflation, but the opposite—declining prices—can be just as serious an economic problem.

If inflation is a situation where prices keep rising, reducing our purchasing power, then deflation (Deflation) is the opposite: prices of goods and services decrease continuously, overall price levels turn negative. People have more purchasing power, but in a different way than you might think—because falling prices are often accompanied by labor issues, lower incomes, and an overall economic recession.

Why Does Deflation Occur, and Is It Worse Than Inflation?

This price decline results from several causes:

1. Demand Contraction: When people lack confidence in the future, they stop buying, leading to decreased demand. Businesses then have to lower prices to stimulate sales.

2. Insufficient Money Supply: If the central bank doesn’t release enough money into the economy, the dollar (or any currency) gains value, but economic activity stalls.

3. Government Policy Mistakes: Excessive tax hikes, credit restrictions, or inappropriate fiscal decisions can all lead to economic downturns.

Historical Example: The Great Depression (1929-1932) in the US was the most severe—GDP fell by 15%, unemployment soared to 23%, and agricultural prices dropped over 60%. The impact lasted until World War II. It’s not just numbers—it’s a state where the economy is trapped in a vicious cycle: prices fall → businesses cut jobs → unemployment rises → demand drops further → prices fall again.

Warning Signs of Deflation: Is Thailand in Danger?

Key indicators include:

As of April 2020, Thailand experienced a deflation rate of -2.99%, the highest in 10 years and 9 months. Further checks show that 70% of goods and services had stable or rising prices—meaning price reductions are not widespread.

Summary: Thailand’s economy is not yet in full-blown deflation but is in a high warning state. The global economy in 2023 grew only 2.7%, below the pre-COVID (3.0%) level. Importantly, the LEI (Global Leading Economic Index) continues to trend downward, indicating increased risks of a global recession in 2023-2024.

Chain Reaction: Who Is Affected by Deflation?

Beneficiaries:

• Fixed-income earners (monthly): their money gains value
• Creditors: when debtors repay, the real value of what they receive is higher

Those Who Lose:

• Entrepreneurs and textile companies: profit margins shrink, fighting to keep jobs
• Stock investors: markets contract, portfolio values decrease
• Debtors: debt becomes “heavier” in real terms

Another reason deflation is linked to economic recession is expectation: when people expect prices to fall further, they hold back on purchases, waiting. Businesses then lower prices more to sell. But at some point, costs can’t be cut further, and the economy stalls—people lose jobs, employment drops, and this vicious cycle fuels deflation.

How to Invest During Such Times?

In deflation, investing is complicated because falling prices don’t necessarily mean easy profits. Here are some options:

Bonds(

When the economy slows, central banks often cut interest rates, increasing the value of previously issued bonds. Buying high-quality )investment-grade( bonds becomes a safe choice.

) High-Quality Stocks###
In a dark market, choose companies that still generate revenue—typically essential businesses (Staples): food, beverages, healthcare, utilities (electricity, water). These tend to resist economic cycles better.

Gold(

During uncertain times, investors often turn to traditional stores of value. Gold’s value remains stable even when interest rates are zero )or negative###. Trading CFDs on gold allows investors to speculate on both rising and falling prices, entering bull and bear markets.

Real Estate###

When the economy is low, many sellers want to convert assets into cash. Real estate prices drop significantly. If we have cash, we can buy undervalued properties and wait for recovery.

( Cash)
In deflation, cash actually has high purchasing power. Holding cash might be the best hedge, waiting for better opportunities.

( Digital Assets and DeFi)
These are changing the game for modern investors. Bitcoin, Ethereum, and other cryptocurrencies are seen as “digital gold” during uncertain monetary policy periods. Cryptos are not dependent on traditional financial institutions.

Stablecoins ()pegged to the dollar( provide stability, while DeFi protocols allow investors to generate yields via liquidity farming )Liquidity Farming( or staking—sometimes offering higher interest than banks.

Investing in digital real estate and valuable NFTs is another option.

Measures and Plans to Cope

If the economy slows down, what will the private sector and government do?

1. Central Banks: Lower interest rates, increase liquidity, and implement )Quantitative Easing(.
2. Governments: Cut taxes, increase public spending, promote investment, and reduce natural barriers )electricity, water.
3. Businesses: Adopt new technologies to cut costs or pivot their operations.

What should investors do?

• Diversify their portfolio Diversification
• Keep 20-30% cash reserves
• Study financially strong companies
• Invest in uncorrelated assets Uncorrelated—gold, crypto, bonds, quality stocks

Brief Summary

Deflation and inflation are different, but both are problems. Deflation occurs when the economy stalls, prices fall, unemployment rises, and the cycle continues.

Investing now requires awareness—just because prices fall doesn’t mean it’s all an opportunity. Sometimes it’s a trap; some companies can’t recover, and some stocks keep falling.

That’s why investors should:

• Study financial statements carefully
• Watch global economic trends, not just local ones
• Prepare multiple plans
• Avoid relying solely on falling prices as an investment strategy

However, many clients are turning to Bitcoin, Ethereum, and digital assets—they are not dependent on traditional financial institutions and may serve as good hedges during financial uncertainty.

Note: Investing involves risks. Always do thorough research before making decisions.