An Economic Paper published by the European Commission's Directorate-General for Economic and Financial Affairs. Just before the global crisis, soaring commodity prices pushed up inflation significantly in EU neighbour countries at the Mediterranean. These price shocks affected public finances in the southern Mediterranean region, notably via government subsidies. The study focuses on food prices and analyses  recent developments in food inflation in Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, the occupied Palestinian territories, Syria and Tunisia in comparison with other middle income economies. Subsidies on food and fuel are quantified per country for the period 2002-2010. The paper discusses some options that can lead to more efficient government spending, even in the event of sharp swings in prices of basic necessities.