January 31, 2017 / 4:01 PM / 3 years ago

UPDATE 2-Argentina again hikes electricity rates to trim deficit

* Prices to spike 60-90 pct for most Buenos Aires consumers

* Shares in electricity companies rally to record highs

* Government says hikes consistent with deficit, inflation goals (Adds quote from energy minister, electricity company share performance, details on Argentina energy deficit)

By Luc Cohen

BUENOS AIRES, Jan 31 (Reuters) - Argentina’s electricity rates will increase between 60 and 90 percent for most consumers in March, according to figures presented by Energy Minister Juan Jose Aranguren on Tuesday, the latest subsidy reduction meant to cut a wide fiscal deficit.

Argentina began rolling back generous subsidies for residential electricity and home-heating natural gas last year. The move has trimmed government spending but contributed to inflation that economists say ended 2016 at 40 percent, eating into purchasing power as the economy remains in recession.

This year, the central bank is targeting inflation between 12 and 17 percent, though economists see it exceeding 20 percent. Center-right President Mauricio Macri’s government is also targeting a fiscal deficit of 4.2 percent of gross domestic product or less for 2017, down from 4.6 percent in 2016.

“These changes in electric service are consistent with two goals for the year: complying with the fiscal deficit of 4.2 percent of GDP and inflation of between 12 and 17 percent,” Aranguren said at a news conference.

Under the changes, 83 percent of consumers will see an increase in electricity prices of 183 pesos ($11.51) per month or less, Aranguren said. The hikes will range from an increase of around 60 percent for the lowest consumption category to 90 percent for those who consume more.

The changes apply to millions of consumers within the greater Buenos Aires area who receive electricity from distribution companies Edenor and Edesur. The poorest consumers will continue to receive a subsidy and will see their final bills increase by a smaller percentage.

Electricity company shares rallied to record highs on the rate hike, leading Argentina’s Merval stock index higher. Edenor, whose shares have doubled in the past six months, was up 6.2 percent, while high-voltage distributor Transener was up 4.9 percent.

The change, coupled with an increase in gasoline prices in January, is likely to contribute to higher inflation in the early months of 2017. The central bank has warned that regulated prices are likely to increase by more than the rest of the consumer price index.

Customers who reduce their consumption from 2015 levels are eligible for discounts. Argentina suffers from a substantial energy deficit, partly due to generous subsidies implemented by the previous populist government, which encouraged consumption.

Macri recently announced a deal to attract investment to its vast Vaca Muerta shale gas reserves in part to help reduce gas imports. ($1 = 15.9050 Argentine pesos) (Reporting by Luc Cohen, Maximiliano Rizzi and Eliana Raszewski; Editing by Chizu Nomiyama and Dan Grebler)

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