Bigbank's Chief Economist Raul Eamets forecasts that 2024's price growth – which has been far above the European Central Bank's 2 percent target – will continue at a similar pace next year.

Eamets said annual inflation this year is likely to be between 3.5 and 4 percent.

"It is likely that next year will see an inflation rate similar to this year. The reasons are fairly straightforward — an increase in VAT will certainly drive prices up, as it did this year. And it will push prices higher than the estimated 1.7 percent. Excise taxes, which will rise over the year, will also increase prices," he said.

While the economy has been weak this year, wages rose by 8 percent. This has also contributed to rising prices. As wages grow, household incomes increase, which on the demand side also fuels price growth, Eamets noted.

Several taxes will rise next year, but increasing VAT is likely to have the greatest impact, the economist said, as Estonia does not apply a lower VAT rate on items such as food.

Lenno Uusküla, chief economist at Luminor Bank, thinks tax rises are already having an impact.

"These are all areas where costs are rising, where businesses know that next year's prices will be higher, and for that reason, they are already refraining from lowering prices or raising them if necessary. The higher inflation expected next year is already influencing prices," he told ERR.

Uusküla forecasts a 5 percent price increase for the coming year.

Liis Elmik, senior economist at Swedbank, believes the purchasing power of the average net salary will further reduce next year. Alongside VAT, income tax will rise from 20 percent to 22 percent.

Although a decrease in the Euribor rate will leave borrowers with more disposable income, experts suspect it will not be enough to offset the increase in income tax.

"I do not have exact calculations, but my intuition suggests that what is taken away by the tax hikes will definitely be greater than what is gained from lower interest rates. Tax increases in a situation where the economy has not yet started to grow properly was a very bad political decision," Eamets added.

Uusküla said the decline in the Euribor rate will only provide relief to borrowers.

"Clearly, there are relatively few families with loans. Most people in Estonia own real estate without a loan. Those who have taken out loans are a clear minority percentage-wise," Uusküla said.

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