Wednesday, June 11, 2008

Iraq's inflation rate soars to 16 percent in April, blamed on rising worldwide prices

The Associated Press
Published: May 25, 2008

BAGHDAD: Rising prices of food, energy and other commodities worldwide pushed up Iraq's inflation rate to 16 percent in April, compared to 11 percent at the beginning of this year, the country's central bank said Sunday.

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 U.S. dollar and keeping interest rates at 17 percent.

"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 told 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 April 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 percent increase, and medical services and drugs went up 1.3 percent. The price of furniture in Iraq rose 0.8 percent and other essential goods and services inched up 0.6 percent.

The cost of fuel fell by 4.9 percent, and transport and communications prices sunk by 2.5 percent, 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 spiked at 69.6 percent at end of 2006, was sharply reduced to 32 percent at the start of 2007 and then to 11 percent 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 program, despite billions of dollars that soaring world oil prices bring to Iraqi government coffers.

Iraq, which sits on the world's third-largest oil reserves with more than 115 billion barrels, exported 57.06 million barrels in April and grossed US$5.9 billion.

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