The relevant economic data for June has been released, and the CPI has surprisingly dropped to a freezing point, mercilessly falling directly to 0%. If this trend continues, it is not ruled out that the CPI could fall into negative territory in July. At the same time, the PPI also decreased by 5.4%. What does this mean exactly?

First, let's look at the CPI for June. Since March of this year, the CPI has been below 1% for four consecutive months. Does the continuous decline in CPI mean that prices are low? If we look at commodity prices, the price of pork continues to fall. Since pork accounts for a large proportion in the CPI index, fluctuations in pork prices have a significant impact on CPI.

However, the prices of vegetables and fruits are still rising, especially some fruits, which are very expensive. Many people exclaim: Now we can afford meat, but we can't afford fruits.

Secondly, the PPI decreased by 5.4% for the month, indicating a decline in the ex-factory prices of industrial products. This reflects the state of economic activity in the real economy. Although production costs have decreased, it can also lead to a reduction in corporate profits, which in turn can lead to layoffs or pay cuts for companies.

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When both CPI and PPI continue to decline, does it mean that the economy is experiencing deflation? There are signs of entering deflation, but it has not truly entered a deflationary state yet, because the premise of deflation is that the CPI is below 1% for a year. However, it has only been maintained for less than half a year, and there is still room for policy adjustments in the second half of the year.

In addition, there is another prerequisite for economic deflation: a reduction in the money circulating in the market. However, the growth rate of our country's M2 has not decreased, and the total supply of M2 money is still increasing. By the end of 2022, our country's M2 reached 266 trillion. By the end of June this year, the M2 supply had already reached 287 trillion.

In just half a year, the money supply has increased by more than 20 trillion yuan. If the current rate of money supply growth continues, it will become a fact that this year's M2 will break through the 300 trillion yuan mark.

So, where has the over-issued 20 trillion yuan gone?

To understand this question, we must first understand the basic concept of M2. Our country's M2 includes all forms of money that may become purchasing power, such as money in circulation in the market and bank deposits.

If we look at the central bank's balance sheet, there is only 11 trillion yuan in currency issuance. However, through the existence of commercial banks, it is continuously magnified to 287 trillion yuan. The central bank's base money first flows to commercial banks, and then flows to the market through bank lending.In this process, a portion of the currency continuously circulates downward, a portion becomes deposits that flow back to banks, and another portion is used for investments or as salaries paid by enterprises. During this process, the amount of currency that banks can lend increases, which is then lent out again, creating a cycle that leads to a continuous growth in the total M2 money supply.

Taking 2022 as an example, the central bank's net currency injection for the entire year was only a little over one trillion, but through the continuous injection of funds into the market by commercial banks, M2 increased by 28 trillion within a year.

The growth rate of M2 is positively correlated with economic growth. Currently, M2 continues to grow, but the performance of economic growth rates and various indicators such as CPI does not align with the performance of M2. Where has the excess money gone?

In fact, commercial banks generally allocate funds to large state-owned enterprises, central enterprises, and large-scale high-quality private enterprises. It is important to note that the vast majority of small and medium-sized private enterprises bear 90% of the society's employment, so such fund allocation is difficult to transmit to the consumer end.

In addition, large infrastructure investment projects by local governments also require a significant amount of funds. However, due to the large investment and long payback periods of these projects, they are also difficult to have a noticeable impact on the consumer end.

According to data released by the central bank, in the first half of this year, RMB deposits increased by 20 trillion yuan, of which household deposits increased by 11.9 trillion yuan. Therefore, a large amount of funds are "idling" within the banks. The poor have no money to spend, and the rich are hesitant to invest, so a large amount of funds flow into banks and become deposits.