Müller, who is also a European Central Bank (ECB) board member, noted that a meeting the board is to convene in June may find it appropriate to reduce interest rates, given the deceleration in overall inflation, in an opinion piece which originally appeared on the Bank of Estonia's blog.

That there have been no major surprises arising on the state of the Eurozone economy since the ECB's last meeting in early March can be viewed in a positive light in that there have been no major upheavals, which in turn permits economists to forecast economic trends to a reasonable degree of accuracy.

The on-year Eurozone inflation rate slowed to an level of 2.4 percent in March, with food price inflation decelerating to 2.7 percent, compared with February's figure of 3.9 percent.

However, when it comes to a variety of services, these have experienced more rapid inflation, and averaged 4 percent more than in March 2023.

Wage growth has been directly impacting on service price inflation as well.

This means the dynamics of average wage increases, along with trends in service price inflation, are being monitored particularly closely by the ECB board.

Before making any decisions on reducing interest rates, the board requires further confirmation that both indicators are continuing on their downward trend.

Financial markets and news outlets often focus on month-by-month inflationary data, comparing them with previous months.

While the slowdown in inflation across the Eurozone has been relatively smooth since autumn 2022, any further fall, to 2 percent, is likely to turn out less steady and uniform.

A comparison to prices a year ago will play a significant role, one which has been influenced by specific events in 2023. For this reason, temporary spurts in on-year inflation should not come as a surprise.

The Eurozone economy was still in a fragile state in the first quarter of this year. Germany, the largest economy in Europe, continues to experience a downturn in manufacturing, though more positive signs are emerging, particularly with trends seen in smaller, southern Eurozone countries, and in the service sector more generally.

Overall, consumer confidence indicators are improving alongside recovering purchasing power, while purchasing managers' indexes derived from businesses also suggest an imminent economic revival.

If the assessment of both the deceleration of inflation and the prospects for economic recovery in the Eurozone is accurate, these are undoubtedly positive signs for the Estonian economy as well.

Gradual recovery in the Eurozone economy implies larger orders for Estonia's exporting firms, while a potential reduction in interest rates would also ease the burden of loan payments to Estonian companies and individuals.

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