When prices soar: How to protect your money from inflation

Have you ever noticed that your salary remains the same, but today you can buy less food than last year? That is inflation eating away at our purchasing power. This article will help you understand what inflation is, how to cope with it, and most importantly, how to invest to make a profit.

Why do prices keep rising?

From late 2022 to early 2023, many people may feel like their money has disappeared because even buying the same goods requires more money. This is inflation — a situation where the prices of goods and services increase continuously.

From the perspective of money’s value, inflation means our money becomes less valuable. You can buy fewer things with the same amount of money, as if your cash is gradually being eroded.

A clear real-life example

Look at the typical grocery prices in our kitchen:

This table shows that inflation does not affect everything equally; some items have increased dramatically in price.

Where does inflation come from? Key causes to know

There are three main reasons for inflation:

1. High demand but insufficient supply

When consumers want to buy more but producers cannot produce enough, sellers raise prices because people have more money and want to buy.

2. Rising production costs

Global prices of crude oil, natural gas, and other raw materials increase. Producers bear these costs and set higher prices accordingly.

3. Excessive money printing by the government

When the money supply in the system increases rapidly, the value of money decreases, leading to higher prices.

During the global economic recovery after COVID-19, these three factors combined: people wanted to buy after lockdowns, but shipping containers were insufficient, chip shortages occurred, and energy prices soared.

Money’s value vs. inflation: Why is inflation not good?

If inflation is kept at a controllable level, it is not dangerous. But if inflation becomes too high, (Hyperinflation) occurs, leading to currency devaluation — the opposite situation, worse than inflation.

• Inflation: prices rise, money’s value drops
• Hyperinflation: prices fall, but the economy stalls, companies lay off workers, and unemployment rises

If you have savings but do not invest, your money will be eroded by inflation, reducing your purchasing power.

Who benefits and who loses?

Beneficiaries:

• Entrepreneurs and traders (can raise prices)
• Shareholders of profitable companies
• Borrowers (repay debts with less valuable money)
• Banks and insurance companies (earn higher interest)

Losers:

• Salaried workers (whose salaries do not keep pace with inflation)
• Money savers (whose savings lose value)
• Creditors

What is the current inflation rate in Thailand?

According to January 2024 data from the Office of Trade Policy and Strategy:

• CPI (Consumer Price Index): 110.3
• YoY inflation rate: 1.11% (decreased)
• Reasons: Lower energy prices due to cost-cutting measures, and abundant fresh vegetables entering the market.

This is a low figure — within a range that the Bank of Thailand can control effectively.

During this inflation era, what should you invest in?

When inflation runs away, we need to make our money work. Here are some options to invest in during inflation:

( 1. Gold - a safe asset

Gold moves in the same direction as inflation; the higher the inflation, the higher the gold price.

) 2. Bank stocks

Banks profit from net interest margins. When the Bank of Thailand raises interest rates, bank stocks tend to perform better.

( 3. Insurance company stocks

Insurance companies hold government bonds that yield higher returns as inflation rises.

) 4. Floating rate bonds

Look for Floating Rate Bonds or Inflation-Linked Bonds that adjust interest rates according to inflation.

5. Real estate

Rental income and property prices often increase with inflation. If you have enough funds, this is a good long-term investment.

5 ways to protect your money from inflation

1. Plan your investments: Don’t let your money sit idle. Invest in assets that yield higher returns than savings account interest.

2. Avoid unnecessary debt: If borrowing does not generate income, refrain from it. Think carefully before buying unnecessary items.

3. Choose stable assets: Gold, dividend-paying stocks, or bonds with good rates.

4. Follow economic news: Inflation impacts the entire economy. Keep track of updates from IMF and the Bank of Thailand.

5. Budget carefully: Keep track of income and expenses, cut unnecessary costs.

If inflation gets out of control, Stagflation may occur

If inflation skyrockets while the economy stagnates, it’s called Stagflation — a dangerous situation nobody wants.

In this scenario:

• Companies cannot sell products, reduce prices
• Profits decline, businesses do not expand
• Layoffs increase, unemployment rises
• GDP growth slows

Fortunately, Thailand has not entered stagflation as of early 2024, so there are still opportunities for comfortable investing.

Remember this

Inflation is a situation where prices increase and the value of money decreases. It is not something to panic about but requires smart investing.

Leaving money in a regular savings account or buying unnecessary goods is like losing money. Instead, invest in stocks, gold, or real estate.

Always follow economic news because inflation affects daily life for everyone.