Prices and inflation

Although the average price level in Estonia is much lower than that of the developed countries, it is one of the highest in the Central and Eastern Europe. The reasons include the fact that prices were freed from governmental regulation at an early stage, and the proximity to Finland whose high price level inevitably has some influence on the prices in Estonia, especially on those in Tallinn, the target destination of shopping-tourists. The existing price differences are not too drastic everywhere – in Estonia services are relatively cheap but the price level of quite a number of goods is comparable to the European average. This applies most to imported industrial and household goods. At the same time there are various goods and services in Estonia with prices lower than in Latvia and Lithuania where the overall price level is lower.

The increase in prices was the quickest during the initial phase of the reforms – in the late 1980s and early 1990s when the prices dictated by Moscow were first ignored. Another reason for the price rise was the shortage of goods that was caused by disrupting the old production contacts and the the need to start importing indispensable goods from the West where prices were not subsidised. By now the increase in prices has slowed down considerably – in 2003 the inflation in Estonia was 1.3% which is less than in the European Union (2%). Joining the EU automatically increased the excise, customs duty was added to some imported goods (there were none before in Estonia), plus the rising prices of oil and metals – all that resulted in the price rise of 3%.

Today, very few prices are state-regulated in Estonia. The government regulation applies primarily to electricity and some fixed telephone communication services. Local governments control the prices of local public transport, distance heating, water, sewage and the limits on rent in some apartment buildings.

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