Data from Statistics Estonia indicates that annual growth in the CPI remained steady in December at 4 percent. Inflation averaged 9.2 percent in 2023, which was in line with the Bank of Estonia's forecasts from last year, Pert highlighted according to a press release. Prices for energy and food being somewhat lower has pulled average inflation in euro area countries down sharply in recent months, coming in at 2.9 percent in December.

The Bank of Estonia forecasts consumer prices to rise by 3.4 percent this year. Price levels will be lifted at the start of the year by various tax hikes, however the impact of VAT and excise duty rate increases will be reduced by the price of natural gas falling this month, as well as by seasonal sales of manufactured goods.

"Higher electricity prices could be a driver of inflation in January if the weather remains cold," Pert noted. "The ending of electricity as a universal service will make electricity prices more volatile for domestic consumers this year, and thus make the total CPI harder to forecast."

The future development of prices for oil and gas, meanwhile, will depend significantly on the performance of the global economy, he added.

Core inflation without volatile energy and food prices, meanwhile, will continue to fall this year through both goods and services.

"The price level in Estonia stabilized in the second half of last year, but there has been no major fall in prices," the economist highlighted. "The recession will probably cause some companies to cut their prices this year, and reduce their production costs."

There is also space in some sectors for prices to be lowered at the expense of profit margins," he added.

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