Why does your wallet shrink faster every year? The inflation you need to know about

Often, you don’t understand why your salary increases but the prices of goods and services also rise, until the amount of money left in your wallet truly decreases. This is the result of inflation (Inflation), which causes your currency to lose value every day. This article will help you understand the meaning of inflation, its impact on life, and clear ways to handle it afterward.

What is inflation? A simple understanding from a practical perspective

Imagine 50 baht twenty years ago could buy several bowls of rice porridge. But today, the same 50 baht can only buy one bowl. This is a situation where the prices of goods and services increase continuously, known as the meaning of inflation.

Another way to look at this is that the value of your money decreases, making you pay more to buy the same item. In simple terms: Inflation makes things more expensive and the currency shrink.

To understand more clearly, look at the essential goods price table from 2021 to 2024:

It’s clear that the prices of daily essentials have increased significantly, sometimes more than tripling within just a few years.

Why does inflation happen? Main causes you need to know

Inflation doesn’t happen from a single cause but results from multiple factors working together:

1. Increased demand for goods without enough supply

As the economy begins to recover after a crisis, consumers have more money to spend, but factories cannot immediately produce enough goods. (Revenge Spending) occurs, prompting sellers to raise prices because they know customers will still buy.

2. Rising production costs

Global prices for crude oil, natural gas, and steel have surged as worldwide production halts. The global economy shut down for 2-3 years, making manufacturing costs higher to stay competitive. Producers then raise prices to cover these costs.

For example: Oil prices in 2020 hit historic lows (due to low demand), but as restrictions eased and countries reopened, oil prices soared to record highs.

3. Supply chain disruptions (

Container shortages, scarce semiconductor chips—while the world worked from home, demand for computers and electronics grew, but production lagged, causing prices to spike.

) 4. Governments printing more money ###

When economies slow down, many governments print large amounts of money to support citizens and businesses. As a result, the money supply increases, reducing its value and raising prices.

Current data: Has Thailand’s inflation decreased?

According to the Office of Trade Policy and Strategy (OTPS) in January 2024:

• Consumer Price Index (CPI) is at 110.3, up 0.3% from last year
• General inflation rate has decreased to 1.11% (YoY) — the lowest in 35 months
• Energy prices have fallen due to government measures
• Fresh vegetables and meat prices have dropped due to increased harvests

The good news is that Thailand’s inflation is slowing down, but caution is still advised because international risks remain.

Who benefits and who loses from inflation

Beneficiaries:

• Business owners and traders can raise prices in line with inflation, increasing profits
• Banks and insurance companies earn higher interest and premiums
• Shareholders in large companies see increased profits
• Debtors who borrow at fixed interest rates benefit because the real value of money decreases

Those who lose:

• Salary earners see their salary increases lag behind inflation, reducing their purchasing power
• Cash savers see the value of their money decline over time
• Lenders who lend at fixed interest rates get back money worth less than when they lent it

For example: PTT Public Company Limited reported a net profit of 64,419 million THB in the first half of 2022, a 12.7% increase due to soaring oil prices. This is a clear benefit from inflation.

How inflation impacts life and the economy

Effects on the public:

• Higher cost of living: food, fuel, electricity—all more expensive
• Reduced purchasing power: same salary buys less
• Psychological pressure: worries about savings and investments

Effects on businesses:

• Increased costs: sales may decline; some firms may lay off staff
• Delayed investments: businesses hesitate to expand
• Variable profits: earnings become unpredictable

Effects on the country:

• Slower growth: if inflation gets too high, it can lead to Stagflation (slow growth with high inflation), an undesirable situation
• Financial imbalance: economic instability

How are inflation and deflation different?

Inflation: The level of goods and services rises continuously, causing currency to decrease in value.

Deflation: The level of goods and services falls continuously, causing currency to increase in value.

Although they appear opposite, both can be dangerous if severe. Deflation causes people to delay spending, businesses to lose revenue, and the economy to slow down or fail.

Thailand’s inflation history through turbulent times

• 1974: Inflation exceeded 24.3% — due to the Israel-Arab war causing oil prices to spike
• 1980: 11% — due to the Iran-Iraq war
• 1997-1998: Asian financial crisis; baht devalued; inflation reached 7.89%
• 2008: Inflation at 5.51%
• 2022: Inflation surged to 7.10% — due to Russia-Ukraine war

High inflation often results from international events and energy pressures.

Practical advice on what to do when inflation occurs

1. Invest in assets that appreciate with inflation

• Stocks: especially banks, insurance, food sectors
• Real estate: rents tend to rise with inflation
• Gold: gold prices increase with inflation

2. Choose inflation-adjusted bonds

• Floating Rate Bonds: interest rates adjust with market conditions
• Inflation-Linked Bonds: returns increase with inflation

3. Avoid unproductive debt

• Refrain from unnecessary purchases
• Plan expenses carefully

4. Stay informed

• Inflation affects everyone; monitor news closely

5. For risk-tolerant investors

• Trade CFD on gold to speculate on both rising and falling markets
• Invest in cryptocurrencies with limited supply, such as (Bitcoin), during high inflation periods

Which stocks benefit from inflation?

Brief summary: What you need to know about inflation

Inflation isn’t necessarily bad if kept at a moderate level (Typically 2-3% per year). It helps economic growth and job creation. But if inflation gets too high (Hyperinflation), it becomes as dangerous as deflation.

The key point about inflation is “your money shrinks every day.” Therefore, don’t leave your money idle in the bank. Invest in growth assets to keep pace with inflation or choose investments aligned with your risk appetite.

Will you be the one causing inflation, or will inflation cause you?