MOSCOW. Dec 26 (Interfax) - Russian Economic Development and Trade Minister Elvira Nabiullina believes inflation in 2007, which will end the year at 12%, is the biggest failing of the year.

"Inflation will be 4% higher than forecast," she said in a joint interview with Interfax and Vesti TV.

"Economists understand that 4% is a substantial figure, although it may not seem so to the general public," she said.

An important factor is the structure of inflation. Price increases on food products were substantially higher, she said. "Prices will rise an average of 12%, but by roughly 16% for food, 6.6% for non-food and 13% for services," she said.

Nabiullina blamed higher food prices on the fact domestic food production is not increasing as quickly as individual incomes. "Therefore imports make up a significant part of many types of food products on the market," she said.

A second factor is the rising competitiveness of Russian producers, particularly those in the agriculture sector who are beginning to export output. "If prices rise on the world market, they have an incentive to export product rather than sell it on the domestic market," she said.

"An entire set of measures must be taken, both short-term and long- term," she said.

The short-term measures, which will have a short-term effect, have been undertaken by adjusting customs and tariff policy (increasing export tariffs and lowering import tariffs on specific goods). "These short-term measures had a definite effect: the inflation rate in November and December was cut 50%, but obviously, in order to decisively reduce inflation in the long term, both mid-and long-term measures are needed," she said.

Those measures should be aimed at increasing efficient food product output in Russia. "Competitiveness at agricultural enterprises, in the food industry must be raised, so that the entire trade structure operates efficiently, so that agricultural producers have access to markets, to develop competition, so that there is no monopolism," she said.

"We are now seeing that with food products, but we have to do that for many other products," she said, naming construction materials as an example.

The high rate of growth in housing construction has driven substantial growth in demand for construction materials, she said. Competition and efficient production must be promoted at the construction materials makers, she said.

Inflation in 2008 "can and must be lower - in the 7.5%-8.5% range," she said. But that will require "serious measures," she added.

"They should be measures not only of a structural natural, but those associated with monetary factors. This year growth in cash offers only slightly exceeded forecast. That must be followed carefully," she said.