Estonia's Ministry of Finance published an inflation update reporting that consumer prices fell 0.6% month on month in December and annual inflation slowed to 4.1%, the lowest level in almost a year. The ministry linked the deceleration mainly to a more favourable external environment and projected that food price inflation would continue easing in 2026. Lower energy costs were highlighted as a key driver, with oil at its cheapest level in recent years, gas prices falling and the euro strengthening against the US dollar, which also kept industrial goods price increases below 1% in recent months. Food commodity prices have retreated from summer highs, with larger declines noted for juice and cocoa, while falling external-market dairy prices amid higher production and inventories supported bigger discounts by retail chains. Food price inflation slowed from close to 9% in the summer months to 5.6% in December, while full-year inflation was reported at 4.8%; euro area inflation was estimated at 2% in a preliminary reading, largely due to lower energy prices. The update also noted that tax measures introduced to strengthen the budget position and cover higher security spending contributed to inflation in 2025, but their contribution is expected to diminish in 2026 as the effects of the motor vehicle tax and a higher value-added tax rate drop out of the inflation comparison. It flagged higher excise rates on alcohol, tobacco and energy products at the start of the year, alongside an income tax reform entering into force that is expected to support household consumption.

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