We estimate that inflation averaged 2.5% in 2010. Libya's consumer price index rose by 2.9% in the year to November 2010. Inflation is forecast to rise to an average of 4% in 2011 in line with sharp increases in international food and non-oil commodity prices. Libyan inflation is mainly driven by imported products. Stabilisation in international prices will lead to a slowdown in the rate of inflation after 2011, which we forecast will average 3% in 2012-15. Inflation will be sustained, however, by a revival in consumer confidence and higher oil revenue leading to greater domestic liquidity. Price increases will also be caused by Libya's more open trading regime permitting the entry of higher-priced overseas goods, especially clothes, but also furniture and consumer goods. Government subsidies will be maintained, which will ensure that prices for many staple goods, particularly housing and healthcare, are kept in check.