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The central bank said consumer prices will start rising in the third quarter as a result of the increase in oil prices. It also pointed out that the price level this year has been rising constantly in month-to-month comparison.

"According to Statistics Estonia prices kept declining in year-to-year comparison in May – goods and services were 0.9% cheaper than in May last year. However, the price level has been rising constantly month over month since the beginning of this year and also in May consumer prices rose 0.1% compared to April. In the first five months of the year the price level rose altogether by 1.4%," Bank of Estonia economist Rasmus Kattai said.

"In January a new growth cycle in oil prices started on global markets, yet because of the very low price level so far it has not sped up inflation yet. Rising oil prices will start to be expressed more clearly in the Estonian consumer price index starting from the third quarter, putting an end to the period of deflation that has lasted two years," the economist said.

Wage growth accelerated to 8.1% in the first quarter and unemployment is low, which has underpinned the rise in domestic consumption. "This is demonstrated by the sales of retail trade enterprises, which grew by 6.7% on the average in the first four months of the year. Despite the increase in demand and sales volumes, the price rise in consumer goods has remained slow," Kattai said.

The Finance Ministry meanwhile said that deflation can be expected to subside in June and prices to start rising again after that mainly as a result of the discontinuation of the decline in commodity prices, a hike in the tobacco excise duty and a rise in some services driven by wage growth.

"Despite accelerating wage growth the rise in the prices of services in May was among the most subdued in the past year. Air tickets and communication services became cheaper and the rise in the prices of holiday packages subsided. One of the reasons behind these developments perhaps was warmer than usual May, which means that lower prices were offered to beef up demand," Kristjan Pungas, analyst at the ministry's fiscal policy department, said in a press release.

He added that the prices of communication services are affected by tight competition.

The rise in alcohol excise duties in February meanwhile has found its way into retail prices by now. In May, alcoholic beverages were 8% more expensive than in May 2015.