Sept. 10 (Bloomberg) -- Inflation in the three Baltic states remained above limits needed to adopt the euro in August, leaving Slovakia as the only candidate in eastern Europe likely to switch currencies in this decade.

Lithuania's annual inflation rate jumped to 5.5 percent, the most in more than nine years, while Latvia's rate rose to the highest in the European Union at 10.1 percent, the countries' statistics offices reported today. Estonia's inflation rate fell to 5.7 percent.

All three former Baltic Soviet states hoped to be among the first in eastern Europe to switch to Europe's common currency when they joined the EU in 2004. With inflation exceeding limits required for adoption, Slovakia is the only other country that may join Slovenia in the 13-member euro-region from the region in the next years, economists said.

``Strong price increases are due to convergence with the EU price levels,'' Hansapank Economist Maris Lauri said in a phone interview. ``It's a very natural, yet unfortunately very fast process. Also, Baltic prices are easily affected by gas or fuel prices which come from Russia and we have little impact on them.''

OAO Gazprom, the world's biggest natural-gas company, has said it plans to raise its price for the Baltic states to the European levels next year. Lithuanian Prime Minister Gediminas Kirkilas said on Aug. 24 gas prices may rise as much as 60 percent.

The Latvian economy, growing more than four times as fast as the euro zone, expanded by 11 percent in the second quarter. Lithuania, the third-fastest growing economy in the EU, grew 8 percent, while Estonia's pace of growth was 7.6 percent in the second quarter.

`Hard Landing'

Standard & Poor's Ratings Service lowered rating outlooks to negative for all three Baltic states, citing a higher risk of a ``hard landing'' due to wide current-account deficits and accelerating inflations.

To make the currency switch as planned in 2009, Slovakia needs to further slow inflation, among other requirements. The country's 12-month inflation was 0.1 percentage point above the euro target of 2.6 percent in July.

Lithuania's 12-month inflation rate was also 0.1 percentage point above the euro target when it applied to join last year but its application was rejected after the EU ruled the country's inflation was not under control and the trajectory for prices was headed up. Since the rejection, the 12-month rate has climbed to 4.5 percent in July.

Slovak Inflation

Slovakia's 12-month rate, by contrast, has fallen from 4.1 percent in January to 2.7 percent in July. Slovakia will report its August consumer-price growth tomorrow, which is expected to slow to an annual 2.2 percent in a forecast by 14 analysts surveyed by Bloomberg.

With currency boards in Lithuania and Estonia and a tight local currency peg to the euro in Latvia, fiscal policy is one of the few instruments available to slow inflation. Latvian and Lithuanian economists are calling on their governments to cut spending next year.

``It's very difficult to contain inflationary inertia,'' Tomas Andrejauskas, an analyst with Hansabankas in Vilnius, said in an e-mailed note. This is why ``the government should pay more attention to ongoing trends and aim to balance the budget next year rather than increase spending.''

Estonia's inflation rate will rise in coming months after a temporary decline in August because of growing fuel and heating prices, central bank and Finance Ministry officials said on Sept. 7. Inflation for the remaining months of the year may exceed 7 percent, they said.

To contact the reporter on this story: Milda Seputyte in Vilnius at mseputyte@bloomberg.net

Last Updated: September 10, 2007 08:27 EDT