Estonia also recorded the fastest price increase in the eurozone in February last year, when inflation stood at 4.4 percent.

According to Eurostat data, after Estonia, the highest annual inflation rates in February among eurozone countries were recorded in Croatia at 4.7 percent, Belgium at 4.4 percent and Slovakia at 4 percent.

Compared to January, inflation was highest in Belgium at 2.4 percent, followed by the Netherlands at 1.4 percent, Estonia at 1.3 percent and Luxembourg at 1.2 percent.

The lowest annual price increases were recorded in France at 0.9 percent and Ireland at 1.3 percent. Compared to January, prices fell by 0.1 percent in Portugal and remained unchanged in Greece, Croatia and France.

Across the eurozone, inflation was primarily driven by a 3.7 percent increase in service prices, followed by a 2.7 percent rise in food, alcohol and tobacco prices. While energy prices in the eurozone increased by 1.9 percent in February last year, they rose by only 0.2 percent this year.

Analysts: Upcoming VAT hike to boost inflation further

According to Statistics Estonia, electricity market prices had the biggest impact on inflation in Estonia. In its flash estimate, the agency noted that only clothing and footwear saw a decline in prices.

Luminor's chief economist, Lenno Uusküla, pointed out that while electricity prices were once again high in February, they were not significantly higher, and electricity consumption alone should not have had such a strong effect on overall prices.

"There may be additional factors in the data, such as the new annual car tax or another administrative change, just as the car registration tax affected January's prices," Uusküla said.

The economist expects prices to continue rising this year. "If productivity remains low and there is no significant increase in demand, either in Estonia or among its trading partners, then companies that have retained their employees despite declining demand are not seeing productivity gains," he noted.

Uusküla added that several tax increases and wage growth are also expected this year, which could result in annual inflation of 4-5 percent.

Bigbank's chief economist, Raul Eamets, observed that the flash inflation estimate exceeds previous forecasts and is not particularly encouraging for economic growth prospects.

"The second half of the year will see further price increases driven by planned excise duty and VAT hikes set to take effect in early July," he noted.

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