NICOSIA - Cyprus said on Friday it would extend a lower value added tax (VAT) on electricity bills and a fuel price cap and also boost pensions to cushion the impact of runaway prices that have pushed inflation to its highest rate in more than 40 years.

The package, costing an estimated 103 million euros, sees VAT on electric bills charged at a lower coefficient of 10% from the standard 19% until Aug. 31, as well as a cap on tax on fuel at the pumps until the same date. Those measures are an extension of a policy adopted three months ago.

People in vulnerable groups will be eligible for a lower VAT rate of 5% on their electricity bills.

The state will increase pensions to some 165,000 beneficiaries, and give vulnerable households one-off cash handouts based on their incomes and number of dependants, Finance Minister Constantinos Petrides said.

Inflation on the east Mediterranean island was running at 8.6% year on year in April, its highest since an annual record of 10.8% in 1981.

(Writing By Michele Kambas, Editing by Frances Kerry)