January 3, 2018 / 6:58 PM / in 2 months

Buenos Aires public transport fares to rise despite inflation worries

BUENOS AIRES, Jan 3 (Reuters) - Bus, train and subway fares in the Buenos Aires area will rise this year, the Argentine government said on Wednesday, despite fears that the increases will stoke already high inflation.

Fare increases on buses and trains will start in February, Transportation Minister Guillermo Dietrich told reporters, with an initial average rise of around 35 percent.

“In order to continue funding public works, we will update rates in a gradual, step-by-step manner,” Dietrich said at a news conference. Subway rates are set to start rising in April.

The news came a week after Argentina changed its 2018 inflation target to 15 percent from the central bank’s previous goal of 8-12 percent. Consumer prices rose 21 percent in the first 11 months of 2017, one of the world’s fastest rates.

President Mauricio Macri was elected in 2015 on promises of freeing the economy from the tight controls favored by his predecessor. He reduced energy and transportation subsidies in a bid to simultaneously cut the fiscal deficit, lower inflation, attract investment and induce long-term economic growth.

Although higher transport fares in Buenos Aires, Argentina’s most densely populated area, would put upward pressure on consumer prices, Goldman Sachs analyst Alberto Ramos said the fare increase would be positive in the long term.

“It will impact inflation in the short term but will keep it lower and contained in the future as prices and tariffs that reflect the cost of producing and supplying these services will attract more investment and will lead to better and cheaper services in the future,” he said in an email.

“It is better to have real prices than hidden subsidies paid by society and non-users of those services,” Ramos added.

The government aims to reduce its primary fiscal deficit to 3.2 percent of gross domestic product in 2018, down from 4.2 percent.

The inflation target revision was “a long overdue recognition that the aggressive inflation targets were not compatible with a slow pace of fiscal adjustment,” Siobhan Morden, head of Latin America fixed income strategy at Nomura Securities International, said in a research note on Wednesday.

Reporting by Hugh Bronstein and Maximilian Heath, Additional reporting by Walter Bianchi, Editing by Rosalba O'Brien

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