NICOSIA, July 16, 2008 (AFP) - Rising oil and food prices will send Cyprus's annual inflation rate to around 5 percent in 2008 compared to 2.4 percent last year, Finance Minister Charilaos Stavrakis said on Wednesday.

He said the island's inflation rate -- currently above five percent -- was higher than the four percent Eurozone average because of the island's total dependency on oil imports.

'Other countries also have a better energy policy than we had, making them less dependent,' Stavrakis said.

'Oil price increases have seen a transfer of wealth to those who export oil. The Cyprus economy has lost 2.7 percent of its GDP -- 500 million euros -- to oil exporting countries,' he added.

Some 150 million euros in state benefits have been approved to try and offset the impact of rising prices on lower income groups.

Nevertheless, the government estimates GDP growth -- barring further big oil price hikes -- will be 3.7 percent for 2008.

A fiscal surplus of between 20 and 100 million euros is projected for the year as the government reins in expenditure.

Cyprus joined the European Union in 2004 and adopted the European single currency in January 2008.