Riga/Vilnius - Struggling Baltic economies Latvia and Lithuania retained the highest inflation levels in the European Union, according to official figures released Monday.

In Latvia, whose government collapsed last month, the consumer price index (CPI) rose by 1.1 per cent from January to February.

Latvia's year-on-year inflation figure now stands at 9.6 per cent, but economist Olga Ertuganova warned deflation was likely to be a bigger problem later in the year.

"This process will be accompanied by economic recession, rising unemployment, reduced purchasing power and a decline in wealth," she said.

"The growth of consumer prices in February was mainly influenced by changes in excise duty," said the Latvian statistics office.

The figures reflect attempts by the government of Ivars Godmanis, who resigned as prime minister on February 20, to increase revenues by slapping extra duty on alcohol, cigarettes and fuel. That kept overall prices high, despite lowered consumer spending power.

Godmanis also increased Latvia's value added tax from 18 to 21 per cent, a measure which his probable successor, Valdis Dombrovskis, may reverse.

In neighbouring Lithuania, the annual inflation rate stands at 8.7 per cent after a 0.3 per cent rise from January to February.

"The annual inflation rate was mostly influenced by a 22.2 per cent price rise for the group of goods and services related to housing, water, electricity, gas and other fuels," said the Lithuanian statistics office.

Both sets of figures contrast with the third Baltic state, Estonia, where on March 6 inflation dropped to 3.4 per cent, its lowest level for more than three years. (dpa)