Iran's inflation rate in the month to August 22 rose to 17.3 from 16.3 per cent a month earlier, the semi-official Fars news agency reported on Monday, quoting the country's Central Bank Governor Mahmoud Bahmani.

'The year-on-year inflation rate in the Iranian month of Mordad is 17.3 percent,' Bahmani said.

Iran's economy is facing hardship because of sanctions imposed over its disputed nuclear programme, which many countries fear is a cover for building bombs. Iran says its nuclear work is aimed at generating power to meet booming demand.

Bahmnai said last month that the country would see inflation fall in coming months, hoping that the figure would fall into single-digits within one year.

Inflation has risen steadily since hitting a 25-year low of 8.8 percent in August 2010 and some economists say it could accelerate following government moves to slash subsidies on essential goods.

Iran started to phase out subsidies on food and fuel in December 2010. The price of gasoline rose seven-fold overnight when the cuts were made. Electricity, gas, water and food have also shown sharp rises.

President Mahmoud Ahmadinejad has denied the policy will fuel inflation and lead to economic hardship and says poorer Iranians will be net beneficiaries thanks to direct subsidy payments.

Many Iranians believe real inflation is much higher than the official figure and some clerics and lawmakers have accused the government of providing false figures.

Grand Ayatollah Naser Makarem Shirazi has expressed concerns about high inflation in the country and said people are worried about rising prices, the semi-official Mehr news agency reported last week.

Economists have told Reuters the subsidy reform - which was much needed to avoid wasteful use of resources - risks causing runaway inflation but that measures to rein in prices could suffocate Iran's economy.

"We will decrease the inflation leap created because of (the) subsidy reform plan in the near future," Bahmani said.-Reuters