Riga - Latvia's annual inflation rate reached 17.9 per cent in May, up from 17.5 per cent in April, as the Baltic nation's economy slows down, the Central Statistical Bureau said Monday.

Rising inflation, coupled with slower growth, is increasingly clouding the economic prospects for the small nation, once known as one of the "Baltic Tigers" along with Estonia and Lithuania.

Inflation has been picking up speed in the three Baltic nations, driven by increased costs for food, housing, utilities and fuel. The economies of Estonia, Latvia and Lithuania are beginning to slow after years of robust growth.

Estonian economy stalled at 0.1 gross domestic product (GDP) growth in the first quarter, the office of statistics said on Monday.

"It is obvious that a hard landing scenario has already materialised in the Estonian economy," Danske Bank experts said in their comment. "Thus, we expect a negative growth performance in 2008 and only marginal improvement in the next year."

The fastest growing economy among the 27 EU nations in recent years, Latvia posted below-expectation GDP growth in the first quarter of 2008. The economy grew by 3.3 per cent, down from 8 per cent a quarter earlier, according to the figures released Monday.

Rising prices and tighter lending policies mean consumers are cautious how they spend their money.

Slowing domestic demand, rapid wage growth and a cooling real- estate market are likely to eliminate the 1-per-cent deficit in the Latvian budget and force the government to lower its 2008 economic growth forecast.

Growth is expected to slow in most Eastern European countries from the Baltics to Bulgaria under the impact of tighter credit, central bank moves to fight surging inflation and the ripple effect of a weaker global economy. (dpa)