Does the increase in inflation rate really differ from deflation?

Definition of “Inflation Rate” That Investors Need to Know

Inflation is an economic condition where goods and services tend to increase in price, or in other words, the value of our money is being eroded, reducing its purchasing power. A clear example is that last year, with 50 baht, you could buy many bowls of rice, but today, you can only buy one. This increase in prices is called inflation, which means a continuous decrease in the value of money.

Investors should pay attention to this not only because it affects their wallets but because inflation rate is a leading indicator that signals the direction of the stock market and future investment trends. If we estimate that inflation means the level of prices will rise or fall, it will influence the movement of the money market or stock market.

Who Benefits, Who Loses from This Situation

Beneficiaries: Private entrepreneurs, traders, large corporations can adjust their product prices according to market purchasing power, increasing profits. Major shareholders of large companies and banks also benefit during this period.

Those who lose: Salaried employees, creditors, and savers. Why? Because wages increase but not fast enough to keep up with rising prices, reducing their purchasing power.

What Causes Inflation

1. Demand-pull inflation (Demand Pull Inflation)
Consumers want to buy more (due to a better economy), but production of goods and services cannot keep up, leading to shortages. Sellers then raise prices.

2. Rising production costs (Cost Push Inflation)
Global raw material prices increase (such as natural gas, crude oil, steel, copper). Supply chain delays, transportation issues, and container shortages force producers to pass higher costs onto prices.

3. Excessive money printing (Printing Money Inflation)
When the government or central bank releases more money than the goods available, the money supply in the system becomes loose, causing prices to surge.

Globally, current causes stem from economic recovery after the pandemic, with people returning to increased spending (revenge spending). However, production cannot keep pace. Moreover, central banks’ interest rate hikes have not yet reduced inflation, and geopolitical tensions still threaten economic stability.

Indicators: CPI and Inflation Rate

Every month, the Ministry of Commerce collects data on 430 items to calculate the Consumer Price Index (CPI). This figure compares year-on-year (Year-on-Year: YoY), which indicates the inflation rate.

As of January 2567 (2024), CPI was at 110.3 (Base year 2562 = 100), an increase of 0.3% from the previous year. The YoY decreased by 1.11% due to lower energy prices after government cost reductions and decreased prices of fresh vegetables, fish, and meat following market supply. The base price in January 2566 (2023) used for comparison was very high, making this year’s recovery rate appear lower.

Goods that increased in price include: fuel, electricity, taxi fares, flights, and personal services.
Goods that decreased include: clothing, pet food, mobile phones, and some types of meat.

How Have Major Goods Prices Changed

It is evident that inflation refers to the movement of price adjustments. Food prices fluctuate year by year, but fuel and gas show a clear upward trend.

Who Gains from Inflation

Oil and gas companies are good examples. PTT in the first half of 2565 (2022) had revenue of 1,685,419 million baht and net profit of 64,419 million baht, growing by 12.7% compared to the previous year. This mainly came from rising oil prices, with PTT reserving 24% of the profit, and the remaining 76% allocated by subsidiaries.

Beneficial sectors:

• Bank stocks: Rising loan interest rates → increased net profit
• Insurance stocks: Investing in higher-yield bonds
• Energy stocks: Oil prices surge → continuous profit growth
• Food stocks: Global supply issues → bargaining power to raise prices

Inflation vs. Deflation: How Do They Differ?

Inflation: Prices of goods increase, money value decreases, but the economy tends to expand.
Deflation: Prices of goods decrease, money value increases, and the economy stagnates or contracts.

A slight inflation (2-3% per year) is considered healthy, encouraging consumption and investment. However, inflation exceeding 5-7% is problematic. Hyperinflation (severe inflation) is disastrous for the economy.

Conversely, deflation is very harmful. People tend to avoid spending, businesses see demand shrinkage, production drops, employment decreases, leading to unemployment and GDP contraction.

Impact on Citizens and Entrepreneurs

Consumer Price Proxy: Rising fuel and living costs

When inflation occurs, daily expenses increase—transportation, food, electricity, gas. In reality, purchasing power decreases. People may see their wages increase, but these increases are often less than actual inflation.

Small entrepreneurs face cold: Rising costs, declining sales

Production costs rise due to raw material prices, but customers buy less because their wallets shrink. As a result, profits decline, expansion plans may be shelved, and layoffs could occur.

National level: Unemployment rate, economic stagnation

If inflation is severe and prolonged into Stagflation (high inflation + negative growth), it combines two threats: low employment, no savings, business closures, slowing GDP growth, and rising unemployment.

Thailand has not yet reached this state, but it must monitor global economic conditions and signals for consultation.

How to Deal with Inflation

1. Plan investments to yield returns exceeding CPI

Depositing money at regular interest rates usually loses to inflation. Consider investing in stocks, funds, or bonds that offer returns 3-5% higher annually.

2. Avoid bad debt

Don’t borrow money to buy unnecessary items, as interest rates are relatively high. Spend thoughtfully.

3. Invest in assets with stable value

Gold is a classic example. When inflation is high, gold prices tend to rise. Some choose to trade CFD gold for speculation both upward and downward.

4. Follow economic news

Geopolitical tensions, central bank policies, and new CPI data all reflect market directions. Stay closely informed.

5. Identify stocks advantaged by inflation

• Banks benefit from higher net interest margins
• Energy companies profit from high oil prices
• Insurers invest in high-yield bonds

6. Choose inflation-linked bonds

Floating Rate Bonds or Inflation-Linked Bonds adjust interest rates according to inflation changes.

7. Real estate remains a viable option

Land and rental values move with inflation but are less volatile than stocks. If you have extra cash, holding long-term real estate can be attractive.

Summary of Inflation

Inflation refers to an economic system where the money in our hands loses value while prices of goods and services rise. Profits are relative to individual investment choices.

Fortunately, policymakers are raising interest rates to tighten the money supply. This shows that inflation is beginning to decline. Meanwhile, the global economy continues to grow moderately (IMF projects 3.1-3.2% in 2024-2025).

Smart investors do not see inflation as an enemy but as an opportunity to select appropriate assets and build a balanced portfolio that profits while hedging risks. Always stay updated with news to be prepared and not miss important upcoming events.