Understanding Inflation: The Silent Enemy of Your Wallet

In today’s world, we are unavoidably living in an “era of rising prices.” The cost of goods and services is steadily increasing, especially for fresh food items such as pork, chicken, eggs, and seafood, as well as fuel and public transportation costs. All of this reflects the impact of inflation, which is affecting our daily lives in a way that cannot be ignored.

What is Inflation?

Inflation refers to a situation where the general price level of goods and services rises continuously, leading to a decrease in the purchasing power of money. In other words, the same amount of money that could buy more items before can now buy fewer items. This is the “silent enemy” of the money in your pocket, gradually eroding people’s purchasing power, especially when incomes do not increase at the same rate as prices.

Main Causes of Inflation

Demand-pull inflation:This happens when the demand for goods and services is higher than what the economy can supply. For example, as the economy recovers, people spend more, but there are not enough goods to meet the demand, so prices rise.
Cost-push inflation: This occurs when the costs of production increase, such as when oil prices rise, raw materials become hard to find, or wages go up. As a result, producers raise prices to maintain profitability.

The Impact of Inflation on Daily Life

Inflation has a clear impact on both spending and saving.

Impact on spending:

As goods and services become more expensive but incomes do not increase proportionately, people feel that their money is not going as far as it used to. For example, a plate of rice and curry that once cost 15 baht 20 years ago is now priced at 35-45 baht, which is nearly three times more.

Impact on saving and investing:

Inflation reduces the value of savings. For instance, if the interest rate on a bank deposit is 1.25% but inflation is 2%, the real return is negative at -0.75%. This means that even if you save money, you will be able to buy fewer things in the future. As a result, many people turn to other assets with higher returns, such as stocks, real estate, or mutual funds.

Ways to Handle Inflation

While the government has policies to control inflation, such as subsidies, adjusting interest rates, or implementing tax measures, individuals also need to plan and adapt to inflation. Here are some strategies:

Budgeting: Plan your income and expenses according to your actual earnings.
Discipline in spending: Keep track of your spending and maintain financial discipline.
Avoid overspending: For example, cut down on dining out and consider growing your own vegetables.
Investment: If bank deposit rates are low, look for alternative investments that offer higher returns and don’t feel too risky for you.
Emergency fund: Always have an emergency fund for financial security.

Although inflation is a normal economic mechanism, its effects on the population are significant. Gaining knowledge and understanding, and preparing by planning your finances properly, will help you navigate through periods of inflation and ensure long-term financial stability.