Inflation in Estonia

A short history of inflation in Estonia

Leaving the Rouble (1991 to 1992)

Estonia regained independence in 1991 into an economy still using the Soviet rouble, whose value was collapsing as the union that issued it dissolved. In June 1992 it became the first former Soviet republic to issue its own currency, the kroon, and did so under a currency board fixed to the Deutsche Mark, with every kroon backed by reserves. The arrangement removed any possibility of financing the government by printing money.

The Currency Board to the Euro (1992 to 2011)

The rule was never broken. It held through the transition, through the Russian crisis of 1998 and through a severe property crash in 2008 and 2009, when Estonia chose to adjust through falling wages and prices rather than devalue. The reward was euro membership on 1 January 2011, and the peg simply became the currency.

Post-Covid Inflation (2021 to 2023)

In Estonia, prices rose fastest in August 2022, at 25.2%. The causes of the post-Covid inflation were global in nature, beginning with the lockdowns: factories and ports closed and the shipping between them fell out of sequence, so goods took longer to make and longer to arrive. Governments had spent heavily supporting household incomes through those closures, so when restrictions lifted there was money waiting to be spent and not enough on the shelves to spend it on. Then in February 2022 Russia invaded Ukraine, disrupting two of the world's largest suppliers of wheat, fertiliser, oil and gas at once, and the cost of everything grown, heated or transported rose with them.

Because the causes were shared, so was the timing: most countries peaked within a few months of one another in late 2022. The major inflation events covers this episode and the others in more detail.