Central Bank of Estonia projects inflation to keep easing and average close to 3% in 2026

The Central Bank of Estonia published an inflation overview pointing to a slowdown in price growth after consumer prices rose 4.8% in 2025, with inflation starting to fall from the autumn and expected to continue declining through 2026. Eesti Pank estimates inflation will be close to 3% for 2026. Tax changes were a major driver of 2025 inflation, contributing around 2 percentage points, including 1.2 percentage points from the vehicle registration tax and 0.7 percentage point from the VAT increase to 24% in July. Excluding tax rises, comparable inflation was 3% and fell to the euro area average of 2% in the closing months of 2025. Food inflation exceeded 6% as global commodity price increases passed through to retail prices, while euro appreciation lowered prices for some imported manufactured goods, and falling global oil prices alongside tighter retail competition reduced transport fuel prices. For 2026, the July 2025 VAT rise is expected to keep year-on-year inflation higher until July 2026, while January excise increases on tobacco and alcohol will continue to add to price pressures. Easing global food commodity prices and cheaper oil are expected to dampen inflation, although higher electricity prices are set to push inflation up at the start of the year, with electricity prices in the first week about a fifth higher than a year earlier. The shift to a uniform tax-free income level is expected to leave households around EUR 700 million better off over 2026, potentially supporting consumption, while still-low consumer confidence and increased price sensitivity are expected to constrain retailers’ pricing power.