Inflation is coming. How should investors adjust? A simple understanding in 10 minutes.

If your money is not invested, its value will gradually diminish. This is the main reason to understand inflation because it truly impacts the money we hold and our investment plans.

Current Situation: Inflation is Rising

Since 2022, various prices in the market have clearly increased. Meat prices have risen from 137.5 THB/kg to 205 THB/kg, LPG gas from 318 THB/tank to 423 THB/tank, and diesel from 28 THB/liter to nearly 40 THB/liter.

The Russia-Ukraine war is a key indicator, making natural resources more expensive and goods scarcer. Prior to that, the world was still recovering from COVID-19, with people having “long-standing pent-up demand,” causing demand for goods to surge. However, factories couldn’t keep up because they had been shut down for a long time.

You Should Know What Inflation Is

Simply put: inflation is when prices go up, and your money’s purchasing power decreases. A clear example — ten years ago, 50 THB could buy a lot of food, but today, the same amount of money can only buy half. That’s because of inflation.

The Consumer Price Index (CPI) is a tracking tool. Every month, the Ministry of Commerce collects data on 430 items and calculates the CPI. This number indicates whether overall prices are rising or falling.

Who Benefits, Who Loses

Beneficiaries:

• Business owners who can raise prices
• Bank shareholders, as interest rates will increase
• Old debtors, because the amount owed remains the same while the value of money decreases

Those at a disadvantage:

• Salaried workers (bonuses will not increase with inflation)
• Old creditors, as the money they receive depreciates
• People who keep money without investing

What Causes Inflation

1. Demand exceeds supply — People want to buy more, but factories can’t produce enough, so prices go up.
2. Rising production costs — Oil, gas, minerals, transportation all become more expensive, forcing producers to raise prices.
3. Government printing more money — When the money supply increases but goods do not, prices must surge.
4. Supply chain issues — Importers, semiconductor shortages, container shortages cause transportation costs to rise and delays.

How Investors Should Adjust

1. Avoid holding cash

Interest on deposits is low, but inflation is high. Real returns = loss of value, and this will happen repeatedly.

2. Invest in bank and insurance stocks

When inflation rises, interest rates increase, leading to higher returns for banks. Insurance companies also benefit from increased investment returns.

3. Gold as a hedge

Gold prices tend to move in line with inflation. When inflation is high, gold prices also rise, making it suitable for those seeking stable assets.

4. Invest in real estate

Rental rates tend to move with inflation. Property values do not disappear; they tend to increase over the long term.

5. Floating Rate Bonds

Choose bonds with adjustable interest rates that respond to inflation, providing higher returns as inflation rises.

6. Follow IMF and central bank news

Monetary policy movements, such as (raising interest rates or ) lowering rates, impact the entire market.

What Happens if Inflation Gets Too High: (Hyperinflation)

If inflation spirals out of control, for example, the price of rice jumps from 100 THB today to 150 THB tomorrow, consumers stop buying, businesses can’t sell their products, and may have to shut down. Unemployment rises, and the economy stalls. This is called Stagflation — an economic recession with high prices, which is extremely dangerous.

Deflation (and Money Contraction) — The Opposite of Inflation

Deflation is when prices continuously fall. It sounds good, but it’s more dangerous because people wait for prices to drop further or expect continued declines, so they stop buying. Businesses can’t sell their products and stop investing. People lose jobs, and the entire economy contracts.

Both severe inflation and deflation are enemies of economic growth.

Contract Terms: Invest in Food Stocks

Food stocks benefit from inflation because food is a necessity that must be consumed. Consumers are willing to pay higher prices, allowing food companies to raise prices and earn profits.

Summary

Inflation isn’t always a bad thing. At moderate levels, it can help the economy grow. But if it gets too high, everyone suffers.

Smart investors turn inflation into an opportunity to profit by investing at the right time in the right assets. The higher the inflation, the faster you need to act.

Always keep an eye on economic news, as inflation changes with global events. Now that you know, invest at the right moment.