Eamets predicts that prices will continue to rise and considers it likely that Estonia will remain among the leading European countries in this area.

"Today's flash estimate of the harmonized consumer price index released by Statistics Estonia shows that prices have risen 5.6 percent compared to the same period last year, and by 4 percent since the start of the year. This is very rapid inflation. I would remind you that Estonia's inflation for the year is forecast at 6 percent," Eamets said.

He noted that the rise in VAT and excise duties is certainly contributing to the price increase, along with global food prices and growing domestic demand.

"Against the backdrop of such high inflation, reducing VAT on certain product groups is becoming an increasingly relevant issue, and this will likely become one of the topics of the upcoming local elections, even though, in reality, it is a decision made at the national level," Eamets outlined.

Luminor Estonia chief economist Lenno Uusküla pointed out that the July VAT hike would directly increase the price index by a maximum of 1.6 percent, assuming it was applied to all consumption.

"In that context, the July price increase is small. However, it is expected that prices will not be adjusted only in the month when the tax increased, but rather spread more evenly over different months, starting earlier and ending later," he explained. "In June, prices rose 0.8 percent. That was a significantly large monthly increase and may have already included part of the July price hike."

Uusküla said that in January of last year, when VAT was increased, the monthly price rise was 1.2 percent, but other prices rose at the same time as well, which further boosted the overall inflation that month.

Luminor still expects this year's inflation to be 5 percent. On a monthly basis, the bank forecasts a more moderate price rise of 0.2 to 0.3 percent.

"Energy prices have stabilized and the euro exchange rate is stronger, which brings inflation in Estonia down. Wage growth has also slowed," Uusküla said.

Swedbank senior economist Liis Elmik said next week's consumer price index, reflecting only the spending of Estonian residents, likely saw a bigger increase.

Elmik forecasts that prices will rise by nearly 6 percent this year.

"Half of the inflation is due to higher government taxes and fees – car tax, VAT, excise duties, and medical and hospital fees," she said.

In July, prices increased across all major product groups, except for clothing and accommodation, which declined.

The drop in clothing and footwear prices was driven by summer sales, while the average decline in accommodation prices, despite peak tourist season, was linked to the timing of major concerts in Tallinn, she said.

"June's statistics were affected by a noticeable increase in hotel prices during the Justin Timberlake concert. Although the AC/DC concert in July attracted even more people, it didn't take place at the beginning of the month, when Statistics Estonia records average hotel prices," explained the Swedbank chief economist.

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