Madis Müller, Governor of the Bank of Estonia (Este Pank), emphasized that inflation continues to slow down, which is a sign of revitalization of the euro area economy.
Mueller, who is also a member of the European Central Bank (ECB) Governing Council, said in an opinion piece originally published that given the slowdown in overall inflation, a rate cut is appropriate at the ECB's June meeting. He pointed out that it may be determined that Estonian Bank blog.
The fact that there have been no major surprises in the situation in the euro area economy since the last ECB meeting in early March can be viewed positively in the sense that there have been no major disruptions, and as a result, economists are able to predict economic trends. Now with reasonable accuracy.
Eurozone year-on-year inflation slowed to a level of 2.4% in March, and food price inflation also slowed to 2.7% from 3.9% in February.
However, for various services, we are experiencing faster inflation, on average 4% higher than in March 2023.
Wage growth also has a direct impact on service price inflation.
This means that developments in average wage growth and trends in service price inflation are being monitored particularly closely by the ECB Governing Council.
The Board needs further confirmation that both indicators continue to trend downwards before making a decision on rate cuts.
Financial markets and news outlets often focus on monthly inflation data and compare it to the previous month.
Eurozone-wide inflation has been slowing relatively steadily since autumn 2022, but a further decline to 2% is likely to become less stable and uniform.
Comparisons with prices from a year ago, influenced by certain events in 2023, play an important role. Therefore, a temporary spike in year-over-year inflation is not surprising.
The eurozone economy remained fragile in the first quarter of this year. While manufacturing in Germany, Europe's largest economy, continues to slump, there are brighter signs, particularly in smaller countries in the southern part of the eurozone, and in the services sector in general.
Overall, consumer confidence indicators are improving as purchasing power recovers, and purchasing managers' indicators from businesses also suggest an impending economic recovery.
If the assessments of both the slowdown in inflation and the prospects for economic recovery in the euro area are accurate, these are definitely positive signs for the Estonian economy as well.
A gradual recovery in the eurozone economy will mean more orders for Estonian exporters, while a potential interest rate cut will also ease the burden of loan payments on Estonian companies and individuals.
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