What is about to happen in one month due to the rising cause of inflation?

When it comes to the causes of inflation today, many people may still not understand why the prices of various goods have risen so much over the past year. This article will explain what factors cause inflation and how it impacts investment and people’s livelihoods, along with ways to cope to reduce its effects.

Why are the causes of inflation a hot topic right now

The causes of inflation stem from a variety of complex factors in the global economy, including supply chain disruptions, the recovery of demand after a recession, soaring energy prices, and still-loose monetary policies.

Consumers in many countries face challenges in spending, from rising fresh food prices, volatile fuel costs, to continuously increasing living expenses.

What is inflation? How does it differ from deflation

###Definition of inflation (Inflation)

Inflation is an economic condition where the price levels of goods and services tend to rise continuously. From the perspective of money’s value, inflation is a situation where the value of money decreases, requiring more money to buy the same goods. Simply put, inflation makes things more expensive.

For example, 20 years ago, Mr. Aek could buy 10 plates of rice with 50 baht, but today, the same 50 baht only buys 1-2 plates. This situation is caused by inflation.

###What is deflation? How does it differ from inflation? (

Deflation is the opposite of inflation. It occurs when the price levels of goods and services decrease continuously. The causes include reduced demand or insufficient money circulation in the economy.

Although deflation might sound good )cheaper goods(, it is more dangerous for the economy because it leads consumers to delay purchases expecting prices to fall further. Producers produce less, businesses incur losses, and unemployment rises.

The 3 main causes of inflation

Generally, the causes of inflation arise from three key factors:

) 1. Increased demand with insufficient supply ###Demand Pull Inflation(

When consumers have more purchasing power but the market supply of goods is not enough to meet demand, sellers will raise prices. For example, during the COVID-19 situation, people saved money, and as conditions improved, they started spending more )revenge spending(, but factories had not yet ramped up production, causing prices to soar.

) 2. Rising production costs ###Cost Push Inflation(

Production costs increase due to various reasons, such as higher crude oil prices, natural gas, and metals in global markets. If producers cannot absorb these costs, they will raise their prices.

During the pandemic, crude oil prices shifted from record lows in 2020 )lockdown period( to record highs as countries reopened and energy demand surged. Additionally, supply chain disruptions increased transportation and manufacturing costs.

) 3. Government printing more money into the system ###Printing Money Inflation(

When the government prints large amounts of money to support the population, the money supply in the system becomes excessive, leading to severe causes of inflation. More money chasing the same amount of goods results in higher prices.

The current global inflation situation

)Various factors exert pressure on inflation

The global economy is recovering despite challenges from COVID-19, geopolitical tensions, and inflationary pressures. Major economies like the United States and emerging markets are experiencing stronger-than-expected growth, driven by government and private sector spending.

However, inflation rates are decreasing faster than expected due to supply improvements and tightening measures by central banks.

IMF’s global economic forecast

According to the latest data in January 2024, the IMF forecasts:

• Global growth at 3.1% in 2024 and 3.2% in 2025, slightly higher than previous estimates
• Growth remains below historical averages due to tight monetary policies, reduced fiscal support, and low productivity growth
• Risks still stem from geopolitical tensions and supply issues

( Stagflation: the worst economic scenario )

Signals indicate the global economy may enter stagflation ###inflation with recession( — a situation where economic growth stalls but inflation remains high.

If Thailand enters stagflation, people’s purchasing power will decline, spending will decrease, and businesses unable to sell at profitable prices will have to lower prices, leading to:

• Reduced business profits
• No business expansion
• Layoffs
• Rising unemployment
• Business closures

Ultimately, GDP stops growing, a situation nobody wants.

Who is affected by inflation

)Beneficiaries of the causes of inflation ###

The groups that benefit include:

• Entrepreneurs/traders: can raise prices and increase profits
• Shareholders: benefit more from banking and insurance stocks
• Banks: earn higher interest from increased lending
• Debtors: if they have loans, repaying debt becomes easier as the real value decreases (inflation makes debt lighter)

###Those disadvantaged by the causes of inflation ###

• Fixed-income earners: employees whose salary increases do not keep pace with inflation
• Lenders: receive repayments with reduced real value
• Cash savers: money stored loses value if not invested

Necessary price adjustments in Thailand

Tracking essential goods prices in Thailand shows clear changes:

Prices fluctuate constantly, especially energy, fresh food, and vegetables, which people buy daily.

History of inflation in Thailand

Thailand has experienced very high inflation in the past:

• 1974: inflation exceeded 24.3% due to Middle East conflicts
• 1980s: high inflation caused by Iran-Iraq war
• 1997: after the 1997 economic crisis, the baht depreciated, inflation hit 7.89%
• 2008: inflation at 5.51%
• May 2022: inflation surged to 7.10% due to Russia-Ukraine war
• January 2024: inflation decreased to 1.11%, the lowest in 35 months

How Thailand measures inflation

(What is the Consumer Price Index (CPI)? )

Every month, the Ministry of Commerce collects prices of about 430 items to calculate the Consumer Price Index (CPI).

An increase in CPI compared to the previous year indicates the general inflation rate, which the Bank of Thailand (BoT) targets.

( CPI data for January 2024 )

• CPI at 110.3 ###Base year 2019 = 100(
• Increase of 0.3% from January last year
• YoY inflation rate remains at 1.11%, down from last year
• MoM index increased by 0.02% from the previous month

)Reasons for the decrease in inflation (

Inflation decreased due to:

• Lower energy prices: government measures to reduce energy costs
• Drop in fresh food prices: increased production of vegetables and meats
• Base effect: January 2023 had a significant price increase, making the current inflation rate appear lower

Impact of inflation on daily life

) Individuals

• Higher living costs: expensive goods, food, transportation all increase
• Reduced purchasing power: the same amount of money buys fewer items
• Salaried workers: salary increases lag behind inflation

Entrepreneurs

• Higher production costs: raw materials, transportation, wages
• Decreased sales: consumers have less money, buy less
• Some lay off staff: profits shrink, costs cut
• Some close businesses: unprofitable

National economy

• GDP growth slows: demand drops, businesses do not expand
• Unemployment rises: businesses reduce staff
• Financial imbalance: people shift investments to risky assets, creating bubbles

How to cope with inflation

Investment planning

Instead of depositing money with low interest, invest in assets with higher returns such as stocks, mutual funds, or real estate.

Avoid bad debt

Limit borrowing to income-generating loans ###such as expanding a business###, and avoid unproductive debt.

( Invest in stable assets Gold is a good choice because it always has intrinsic value and does not decay over time. Gold prices tend to rise with inflation.

) Follow news updates Inflation affects our finances and lives. Stay informed closely to prepare timely.

What to invest in when inflation is high

Assets with good returns

• High-interest savings accounts: choose fixed deposits with above-average interest
• Real estate funds: rental income adjusts with inflation, less volatile than stocks
• Bonds: choose Floating Rate Bonds or Inflation-Linked Bonds that adjust interest rates with inflation
• Gold: prices tend to rise with inflation, suitable for long-term investment and speculation

Stocks benefiting from inflation

Examples of companies profiting well during high inflation

PTT Public Company Limited in the first half of 2023:

• Total revenue: 1,685,419 million THB
• Net profit: 64,419 million THB
• Growth: 12.7% compared to the previous year

This net profit of 64,419 million THB mainly comes from PTT itself (~24%) and the rest from subsidiaries. It’s a good example of profit gained from price adjustments during inflation.

Pros and cons of inflation

Pros

✅ Benefits for business owners: can raise prices, increase profits, and expand their businesses

✅ Job creation: expanding businesses need more employees, reducing unemployment

✅ Accelerate money circulation: increased income leads to more spending, speeding up economic activity

Cons

❌ Excessive cost of living: rapid inflation causes people to buy less, reducing sales for producers

❌ Layoffs: decreased production leads to job cuts, higher unemployment

❌ Hyperinflation: extreme inflation (called Hyperinflation or “money crunch”) causes chaos in the economy

❌ Reduced purchasing power: cash savers lose value, system instability

❌ Economic damage: if inflation turns negative ###deflation###, people delay purchases, producers avoid production, leading to economic crisis

Summary

Inflation results from an expanding economy with increased demand, high production costs, and government money printing. When the causes of inflation push prices up, investors can profit by investing in beneficial sectors like banking, insurance, or essential goods.

Moderate inflation can promote economic growth, but if it becomes excessive (Hyperinflation), it harms the general public. Conversely, deflation, where prices fall, leads to economic stagnation.

Investors should monitor inflation data regularly, plan investments wisely, and use stable assets to prepare for future economic changes.