The thermostat introduced recently by Stoyanov and Groot (J. Chem. Phys. 2005, 122, 114112) is analyzed for inhomogeneous systems. This thermostat has one global feature, because the mean temperature used to drive the system toward equilibrium is a global average. The consequence is that the thermostat locally conserves energy rather than temperature. Thus, local temperature variations can be long-lived, although they do average out by thermal diffusion. To obtain a faster local temperature equilibration, a truly local thermostat must be introduced. To conserve momentum and, hence, to simulate hydrodynamic interactions, the thermostat must be Galilean invariant. Such a local Galilean invariant thermostat is studied here. It is shown that, by defining a local temperature on each particle, the ensemble is locally isothermal. The local temperature is obtained from a local square velocity average around each particle. Simulations on the ideal gas show that this local Nosé-Hoover algorithm has a similar artifact as dissipative particle dynamics: the ideal gas pair correlation function is slightly distorted. This is attributed to the fact that the thermostat compensates fluctuations that are natural within a small cluster of particles. When the cutoff range rc for the square velocity average is increased, systematic errors decrease proportionally to rc(-)(3/2); hence, the systematic error can be made arbitrary small.