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As a matter of fact, our purchasing power is constantly eroded due to negative real interest rates, and savings and fixed-income investments become an unwise choice.

Is there any alternative for small investors to hedge against rising inflation? It seems investment in equity stocks may not be much affected by inflation, because in the long run a company's revenue and earnings should increase at the same pace as inflation. However, investment in the stock market also involves high market risk and volatile rates of return.

In the United States, there is a special type of bond that was created to offer investors protection from inflation, called Treasury Inflation-Protected Securities (Tips). These were very well received when first issued by the US Treasury in 1997. Unlike traditional or regular bonds, Tips guarantee the purchasing power of the investors is maintained regardless of inflation. The face values of Tips is automatically adjusted to the inflation rate as measured by the Consumer Price Index, and the value of corresponding coupon payments adjusts accordingly. When the instrument matures, the investor is paid either the inflation-adjusted or the original principal, whichever is greater.

Tips are offered by the US Treasury in five-, seven-, 10- and 20-year maturities. A similar type of product is offered by the Canadian government, called the Real Return Bond. Tips may be unfamiliar to most Thai investors, because there is no such type of security offered by the government for the time being.

Although the long maturities and durations of such instruments make them highly sensitive to fluctuations in interest rates and therefore more volatile than regular bonds in quickly rising interest-rate environments, they are deemed an effective way of eliminating inflation risks as inflationary expectations increase. Hopefully, the Thai authorities will find it interesting and worthwhile to create such an investment vehicle for investors in the not-too-distant future.