Data from Statistics Estonia shows the consumer price index rose by 5.2 percent compared to June 2024.

Raudsepp told ERR that he has been warning for two years against raising taxes too quickly, as this leads to a situation where the country ends up in prolonged stagnation and high-speed inflation.

Meanwhile, the annual change in consumer prices in Finland was 1.9 percent.

Raudsepp also pointed to taxes as the reason for Estonia's higher price growth compared to its neighbors, saying that Estonia has raised taxes more than its neighboring countries have.

Minister of Finance Jürgen Ligi (Reform) downplayed the impact of tax policy on prices in an interview last week. "Prices are not under anyone's direct control, nor can the government cause inflation with taxes," he said.

The head of the Institute of Economic Research noted that he is not familiar with all of Ligi's positions, but he assumes that tax policy has influenced price increases.

"If we look at price hikes in stores and gas stations and compare them with the price hikes the state has imposed through visit fees or state levies, we can see increases reaching into the hundreds of percent. Yes, they may not make up a large share of our overall expenses, but it still shows the direction of thinking. I've spoken about this before and pointed out where service fees have risen by as much as 450 percent," Raudsepp said.

"The car tax will obviously have an impact, as will rising excise duties and increasing value-added tax rates – all of this is connected. These end up in our production costs. These are input costs for production, and sooner or later we'll see a rise in prices," he noted.

On July 1, VAT rose to 24 percent and a car tax was introduced at the beginning of the year. Income tax also rose in January.

According to the consumer price index, food prices in June of this year were 8.4 percent higher than in June last year.

Raudsepp cited changes in global market prices, increased demand, and the retail business model as reasons.

"Food sales in retail have been declining for years. At the same time, retailers' costs have been rising. That means that if one expects markups to decrease, that's not going to happen, because on one hand, turnover has been falling, and on the other, costs are increasing. What has to be done? Profit margins must be maintained or increased," Raudsepp added.

"Let's recall that the last VAT rate hike was a year and a half ago. What followed was chaotic or erratic price growth, not a single-step, single-date, fixed-rate increase. That will likely repeat this year as well, and in the end, we're in a kind of endless cycle where the cost of living rises, people struggle to get by, and confidence is low," the head of the institute said.

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