Expert Explains Price Increases ({{commentsTotal}})

Source: Photo: Postimees/Scanpix

LHV macroanalyst Heido Vitsur has highlighted four main reasons for the nation's fast paced price rises in recent years: government policy, economic growth, the situation of the internal market and the proximity to Finland.

Speaking on ERR radio Wednesday, Vitsur said that the government's decision to increase VAT and various excise duties has played its part.

He said the lack of internal competition that would stabilize prices, and the dominance of an ideology of justifying price increases derive from our size and characteristics of Estonia's market.

While the above conditions are somewhat flexible, Finland's effect, as one of Europe's most expensive nations with very high purchasing power, is out of Estonia's hands, Vitsur said.

Future looking more stable

The analyst said he sees no reason why the high increases should continue next year, predicting inflation levels closer to Europe's average.

Speaking about indicators that will influence prices levels in the future, Vitsur said that much will depend on whether the government continues a path towards more independence from EU structural funds by raising taxes, and also on the nation's economic growth.