Inflationary pressures will creep up in 2011 as international commodity prices rise. Grain and oil seed prices are forecast to rise significantly in 2011 (by 41% and 26% respectively), increasing the rate of inflation in Bahrain as it relies on imports of both. We expect inflation in Bahrain to average 4.5% in 2011, up from only 2% in 2010. It will moderate to 3% in 2012 as commodity prices decline and will average 3.4% over the remainder of the forecast period. Bahrain will have to manage imported inflation from both the US (against whose currency the Bahraini dinar is pegged) and Saudi Arabia (its largest trading partner). The official consumer price index is widely believed to understate price pressures. The government has introduced a one-off grant of BD1,000 for each Bahraini family in 2011 to lessen the impact of increased commodity prices, which will add to Bahrain's already costly subsidy bill. Proposals to change the subsidy system would probably cause public anger, so inflation will remain artificially low.