Prices and inflation

Although the average price level in Estonia is much lower than that of the developed countries, it is one of the highest in the Central and Eastern Europe. The reasons include the fact that prices were freed from governmental regulation at an early stage, and the proximity to Finland whose high price level inevitably has some influence on the prices in Estonia, especially on those in Tallinn, the target destination of shopping-tourists. The existing price differences are not too drastic everywhere – in Estonia services are relatively cheap but the price level of quite a number of goods is comparable to the European average. This applies most to imported industrial and household goods. At the same time there are various goods and services in Estonia with prices lower than in Latvia and Lithuania where the overall price level is lower.

The increase in prices was the quickest during the initial phase of the reforms – in the late 1980s and early 1990s when the prices dictated by Moscow were first ignored. Another reason for the price rise was the shortage of goods that was caused by disrupting the old production contacts and the the need to start importing indispensable goods from the West where prices were not subsidised. At the beginning of the 21st century, the rate of price increases slowed significantly: in 2003 inflation was 1.3% in Estonia. But, after joining the European Union, prices started to rise more quickly. At first, this was caused by some taxes increasing (excise taxes) and some new ones being imposed (customs duties), then oil, metals, food and other products become more expensive globally, and fast growth in deposits and the economy raised prices. In 2008 consumer prices grew 10.4% in Estonia. But the economic crisis brought prices down fast, even though the government raised taxes in an attempt to balance the budget: in 2009, the prices stayed at the level of the previous year, but from May 2009 to February 2010 prices fell in comparison to the previous year. When prices started rising worldwide, there was also a faster rate of price increases in Estonia (2010-2011).

Today, very few prices are state-regulated in Estonia. The government regulation applies primarily to electricity and some fixed telephone communication services, as well as the prices charged by major monopolies. Local governments control the prices of local public transport, water and sewage.

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