* Household electricity price hikes well below inflation
* Increase seen adding 0.038 percentage points to 2011 inflation
* Raise in line with officials' recent remarks (Adds analyst's comment, stock price, details)
By Yoo Choonsik
SEOUL, July 26 South Korea on Tuesday announced a long overdue hike in electricity tariffs, although the government, reeling from a series of election losses and infighting among ruling party legislators, largely let households off the hook.
Overall prices for electricity will rise by an average 4.9 percent from next month, well short of the 15 percent that industry experts say is needed by state owned electricity distributors to make up for rising raw material costs.
The bill for households will rise by just 2 percent, well below 4.4 percent annual rate of consumer price inflation as the government of President Lee Myung-bak carries out what it has termed a "war on inflation".
Industrial users will pay an additional 6.1 percent, the Ministry of Knowledge said in a statement.
"The relatively small tariff increase for home use shows how much the government is concerned about the burden on the household sector," said Park Hee-chan, economist at Mirae Asset Securities.
Government sources have said the economy ministry, in charge of energy policy, had demanded a 7.6 percent raise on average whereas the finance ministry, which oversees budget and other macroeconomic policy, wanted a 4.8 percent increase.
Due to inflation concerns the government has not allowed state-run power monopoly Korea Electric Power Corp (KEPCO) to raise tariffs this year despite rising costs, resulting in large accumulated losses at the company.
Power tariffs are currently at just 86.1 percent of raw material costs, Economy Minister Choi Joong-kyung told a news conference on Tuesday, while announcing the new tariffs.
A shock defeat in key by-elections in April has forced the government to shift its policy priority away from economic growth to fighting inflation, with two bigger nationwide elections slated for next year.
The central bank expects this year's inflation to accelerate to 4.0 percent from 2.9 percent last year largely on higher global prices of energy and raw materials.
KEPCO suffered a 1.8 trillion won ($1.70 billion) operating loss last year, bringing combined losses for the 2008-2010 period to 6.1 trillion won.
KEPCO shares, which have lagged the market on concerns about its earnings shortfalls, rose 0.6 percent to 26,650 won by 0208 GMT, only a tad higher than the 0.2 percent gain in the broader market , as the expected move failed to cheer investors.
South Korea relies almost entirely on imports of key energy sources and struggles to keep energy prices high enough to discourage excessive consumption but not so elevated they deter economic activity.
The economy ministry said in the same statement the country's electricity prices were still far too low, causing excessive consumption and accumulating debt at KEPCO that in return burdens government finances.
South Korea's electricity prices for home use are less than half the average for Organisation for Economic Co-operation and Development (OECD) members and those for industrial use stands at 54.6 percent of the OECD average, it said. ($1 = 1056.200 Korean Won) (Additional reporting by Seongbin Kang and Hyunjoo Jin; Editing by David Chance, Jonathan Hopfner and Ramya Venugopal)