Analysts Predict Inflation in Estonia to Stay Around 6 Percent in 2025

Analysts have updated their inflation forecasts for Estonia, projecting that the inflation rate for 2025 may hover around 6 percent, with the possibility of it rising even higher. This assessment comes as experts express a more cautious outlook on economic conditions in the country.

Rising Inflation Estimates

According to Triinu Tapver, an analyst with Estonian bank LHV, initial forecasts put inflation at 4.5 percent at the end of last year. However, current estimates suggest a rise to an inflation rate ranging from 6.2 to 6.5 percent. Tapver emphasized that the final rate will depend on various factors, including developments related to customs duties and U.S. tariffs.

"We are currently leading the inflation rankings in Europe. Our costs are nearing, and in some instances, exceeding the European average," stated Tapver, highlighting the challenges faced by consumers.

Drivers of Inflation

Experts have identified several factors contributing to inflation, particularly in the sectors of energy and food. Kristjan Anderson, head of business accounting at Selver, a major retail chain, indicated that forecasts suggest food prices will significantly contribute to inflation, potentially pushing it closer to 6 or 7 percent.

Anderson noted fluctuations in global market prices for essential commodities such as cocoa, coffee, and oil are impacting costs. He cited the anticipated rise in egg prices as an example of how these factors are expected to play out in the coming months.

Consumer Spending Trends

The impact of rising prices has made consumers more cautious with their spending. Anderson remarked that in his two decades in retail, he has never witnessed such a high proportion of discounted items being included in shopping baskets. He pointed out a significant decline in sales volume for products with over 10 percent price increases, particularly candies around Valentine's Day and International Women’s Day.

Similarly, Kaire Koik, a board member of the Klick electronics chain, reported that March was unexpectedly slow in sales, attributing this to decreased consumer willingness to spend. "It’s not that people lack money; rather, there is a sense of anxiety that's causing them to hold back on purchases," Koik explained.

Economic Outlook

The Bank of Estonia released a new forecast last week, maintaining an inflation estimate of 6 percent for the current year. Other institutions are expected to follow suit in revising their projections as the economic situation develops.

Preliminary data from Statistics Estonia indicated an annual inflation rate of 4.3 percent as of March, although this estimate has not yet been fully detailed. The continuing rise in prices raises concerns about the economic environment in Estonia, prompting analysts to keep a close watch on various indicators affecting inflation and consumer behavior.

As the year unfolds, the focus will remain on how local and global economic factors will continue to shape inflation trends in Estonia.