We cannot influence global food or oil prices, but we do have options. We are living in an era of inflation. This year's inflation forecasts range between 5–6 percent, among the highest in Europe.

Estonia's year-on-year inflation was 4.3 percent in March, the same as Croatia's. Only Romania (5.1 percent), Hungary (4.8 percent), and Poland (4.4 percent) had higher inflation. In the eurozone as a whole, the average was 2.5 percent, slightly above the European Central Bank (ECB) target.

The main driver of inflation in Europe was a rise in service prices (46 percent). Food price rises contributed 19 percent, energy increases 9.4 percent, and everything else 25.6 percent.

Similar factors influenced Estonia's inflation. Food and energy prices are slightly higher here, as our average consumer spends more on both than the average euro area consumer.

As a small, open economy, we depend on world market prices and imported electricity and gas.
We also fuel price increases ourselves with car-related taxes, VAT, and excises, which are passed on to prices. Eesti Energia — sorry, Elektrilevi — will also hike network fees starting August 1.

The root causes of European inflation lie in long-term money printing. For more than ten years, money was printed en masse and flowed into consumption, real estate, bonds, stocks, crypto, gold, and other assets. In difficult times, money flows out of riskier investments (like cryptocurrencies) into bank accounts or gold. The overall price increase is larger than consumer prices suggest, as stock and bitcoin value changes are not reflected in the consumer price index.

Estonia cannot influence the global money supply or pursue an independent interest rate policy. Countries retaining their own currencies, like Poland, Denmark, or Sweden, still can.

Those who sigh for the Estonian kroon can remember it was pegged to the euro and operated under a currency board. Whether kroons or euros circulated made no real difference — only the images and numbers on the banknotes differed. Since regaining independence, Estonia has never had a genuine monetary policy.

What can Estonia do? It is wrong to say we can do nothing. While we cannot affect global food or oil prices, we have some options.

First, avoid raising indirect taxes (VAT and excises), as they are directly passed on to consumers. The same applies to car taxes. If extra revenue is needed, property taxes can be used, as they impact consumer prices less.

Second, halt or suspend indexation of certain social benefits, like pensions. This is a major budget expense and fuels consumption-driven price growth. Extraordinary pension increases before elections worsen this. Elections are just around the corner. This year, indexed pension increases added €500 million to the budget. Next year will cost even more, as this year's inflation exceeds last year's.

Public sector spending should be cut, especially in administration. Finance Minister Jürgen Ligi's claim of only 3,000 officials does not hold up. That's like saying Estonia has only 101 politicians — technically true, but misleading.

Regulations and unnecessary reporting (ESG, etc.) should be reduced, as these costs are passed to consumers. The abolition of the "tax hump" should also be abandoned. It would create a major budget hole and increase consumption, driving prices higher.

So there are indeed policy options. Implementing them requires political will. Whether that will exists is another question.

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