Rising prices of food, energy and other commodities worldwide pushed up Iraq's inflation rate to 16 per cent last month, compared to 11 per cent at the beginning of this year, the country's central bank said.

Central Bank of Iraq Governor Sinan Al Shibibi said the bank would continue its monetary policy focused on absorbing the inflation by strengthening the Iraqi dinar against the US dollar and keeping interest rates at 17 per cent.

"The interest rate is high, I admit that, and that could lead to the private banks sending their money to the central bank rather than other fields," Al Shibibi said at a press conference in Baghdad's fortified Green Zone.

"But it serves the economy by reducing inflation."

In its monthly report, the Iraqi Planning Ministry said last month saw increases in prices for the most important goods and services, which make up more than two-thirds of a family's expenditures.

Food prices rose the most, with a 13.6 per cent increase, and medical services and drugs went up 1.3 per cent. The price of furniture in Iraq rose 0.8 per cent and other essential goods and services inched up 0.6 per cent.

The cost of fuel fell by 4.9 per cent, and transport and communications prices sunk by 2.5 per cent, the report said.

"This increase in the general level of prices in April has been caused by the outside (economic) shock Iraqi economy is still facing due to soaring prices," Al Shibibi said.

Inflation, which increased at 69.6 per cent at end of 2006, was sharply reduced to 32 per cent at the start of last year and then to 11 per cent at the beginning of this year, thanks to a policy package that included exchange rate appreciation and higher interest rates.

But the security situation in some areas and corruption are still the main obstacles for a public investment programme, despite billions of dollars that soaring world oil prices bring to Iraqi government coffers.