Life became 3.4 percent more expensive in July, which is how much more people need to pay for goods and services. "Price graphs are never straight but I don't like this one, as I hoped it would be heading in the opposite direction," Vitsur said, adding that prices have risen by 37.5 percent in Estonia since 2020.

"Food by 40 percent and housing expenses by 90 percent, meaning that price advance has been fastest in the most painful areas. It is hard to say to what extent inflation has hit real incomes because levels of income differ to a great degree and price advance has a different effect on people in different income classes. The least fortunate spend half or even more of their income on food and housing, while it is seldom more than 20 percent for the wealthy," the expert said.

Vitsur said that growth of average salary has more or less kept pace.

"Looking at Europe and our neighbors – since our neighbors Latvia, Lithuania and Finland have seen much more modest price changes for some time, I saw no reason why it [price advance] should be so much faster here. We share the same economic region. But the decision to hike taxes and excise duties caused traders to increase prices more. I don't understand the 11 percent telecom services price hike, but I suppose it is corporate strategy," the economic expert said.

"Government has done nothing to slow price growth"

The outlook for 2025 is less than rosy, Vitsur told Vikerraadio.

"That is why I've been ticked off for three years now in terms of why Estonia has done nothing to slow price advance, with the government adding fuel to the fire instead. Hiking VAT in this situation and taking decisions that work to hike prices even more will have a very poor effect on Estonia's competitiveness in Europe. It is the biggest single mistake the Estonian government has made."

Virsur suggested that Estonia has painted itself into a corner. "We could pursue more flexible policy if Estonia had VAT and income tax exemptions, similarly to the rest of the world."

According to Vitsur, those making less than €1,600 after taxes can be considered less fortunate in Estonia.

"We have something of a vague middle-class in between there, plus 10-15 percent, while the wealthy make over €2,500 a month. It also depends on the size of one's family and financial obligations," the analyst noted.

He said that politicians tend to take very different views in Estonia, with some prioritizing a simple income tax system without any exceptions, which they believe will benefit Estonia, while others hope to make sure people have something to eat. "They're very different," he remarked.

According to Vitsur, Estonia gambled away its solid financial position following the last financial crisis.

Vitsur: Estonia to overtake Italy in terms of cost of living

"If we consider that prices grew by 37 percent in Estonia and only half that in Europe, including by less than 25 percent in states that already are more expensive, we were on course to catch up. But the limit is close at hand now. Estonian companies and the economy as a whole cannot stomach much higher prices, which have stretched our competitiveness to the limit," Virsur said.

"It is entirely realistic to believe Estonia's price level will overtake Italy's. It will happen in a few years' time. But Estonia's average price level will not catch up to Germany, which is two places ahead of us," the economic expert added.

Vitsur pointed out that when it comes to food products, Estonia already is among the five most expensive states in Europe, while it is far behind in other categories.

"Leaving aside Sweden and Denmark, food tends to be subject to a lower VAT rate elsewhere in Europe, which is why we get the feeling it's very cheap to live elsewhere," Vitsur said.

The analyst does not believe traders have become greedy. "I don't think they got greedy. They were just trying to save their skins by anticipating the VAT hike."

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