The government announced a broad-based plan in May to curb inflation by gently reining in its own spending and encouraging the public to save more and spend less in the overheated property market being fuelled by a credit boom.

'You cannot put an equal sign between the plan to curb the inflation and curb the credit market,' Hansabanka President Maris Avotins told the daily Diena. 'To lower inflation, you have to do more, including curbing the government's spending.'

The government implemented only two out of six unveiled measures, which do not impact the segments of the economy responsible for the high inflation in July, a report by Latvian Commercial Bank Association said.

Rising prices for food, transportation and services were largely responsible for the record inflation, according to the office of the statistics.

'What we're missing is the political will,' said Andris Vilks, an analyst at the SEB Unibanka, told Deutsche Presse-Agentur dpa.

The government proposed a balanced budget for this year and a budget with 0.2 per cent surplus for the next year, but the spending plan does not consider rising inflation, Vilks said. Parliament is due to debate the spending plan this fall.

The government should maintain at least 1 per cent surplus in the budget above the projected inflation, he said.

An international credit agency report said this week that Latvia's economy appears the most vulnerable to risk in case of global credit squeeze.

The country could come under pressure to devalue its currency, setting back by years its hopes of joining the eurozone, Standard and Poors said.

In July, annual inflation reached 9.5 per cent, a record for the last decade in the Baltic country which joined the European Union in 2004.

Latvia has a current account deficit of more than 20 per cent of its gross domestic product (GDP), and very strong GDP growth fuelled by a credit boom. tap.