A United Arab Emirates supermarket chain has agreed to a government request to control the price of several basic food items as the world's fifth-largest oil producer grapples with near-record inflation.

Inflation in the UAE hit a 19-year high of 9.3 percent in 2006 and probably reached 10.9 percent last year, the National Bank of Abu Dhabi said last month.

UAE businesses complain that the falling dollar is making some imports more expensive, especially from Europe, where the euro has appreciated almost 16 percent against the dollar since the start of last year.

The UAE's Union Cooperative Society, which operates about 16 stores, said on Wednesday it had agreed to fix the retail price of 16 food items such as cooking oil, flour and rice this year and raise them in line with increases in wholesale prices.

"The price of the dollar is getting weaker and the price of (crude) oil is going up," UAE Ministry of Economy Undersecretary Mohammed Ahmed bin Abdul Aziz told reporters in Dubai before a joint meeting with co-op officials.

"Our efforts to curb rent with rent caps and controls of food prices will help reduce the impact of inflation," he said.

The agreement with Union Co-op is designed to encourage other supermarket chains in the country of 4.5 million people to hold their prices steady too, said Majed al-Shamsi, president of Union Co-op.

Basic food prices could rise as much as 30 percent this year, according to Union Co-op. "The purpose of cooperatives is to stabilise prices and encourage competition," Shamsi said. Fixing prices will cost Union Co-op as much as Dh45 million ($12.25 million) this year, he said.

The UAE government, which has kept its dirham pegged to the dollar at the same rate for the last 11 years, aims to reduce inflation to 5 per cent this year, UAE Minister of Economy Sultan bin Saeed al-Mansouri told reporters at the same meeting.

"It's a big challenge whether we can achieve it," Mansouri said of the target.

"We need to look and see how that can happen ... the agreement today is one aspect but we will have to look at other sectors," he said, declining to give further details.

The agreement with Union Coop also covers eggs, sugar and meat, the ministry said in a statement given to reporters.

Food prices in the UAE will probably jump 40 percent this year, after surging 30 percent in 2007, said Jamal al-Saeedi, executive manager of the Emirates Society for Consumer Protection.

Gulf Arab oil producers are trying to offset inflation by introducing price controls on rents, subsidising food and raising wages.

Earlier this week, the UAE's economy ministry set a ceiling on the maximum price retailers are allowed to charge for some basic food items to help stabilise prices. - Reuters