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Russia's choice--tariff rises or inflation targets
By Julie Tolkacheva
MOSCOW, Jan 23 (Reuters) - Russia risks higher inflation if it presses on with reforms which would let prices of utilities and railways rise this year.
Analysts still expect it to go ahead with the tariff liberalisation, part of a restructuring of state-owned monopolies, including the railways, the world's biggest gas company Gazprom (GAZPPE.RTS)(GAZPq.L) and national power grid UES (EESR.RTS).
The aim is to create internal power and railway markets and to provide for vital investment by eliminating the subsidies they now pay to the rest of the economy through selling on the domestic market at well below cost.
But the government is under pressure from inflation, which was well above target last year, and from large industrial consumers, such as metals plants, whose operations will become more costly when utilities prices rise.
"The government is facing a dilemma: whether to keep inflation within the budget plan, but then tariff increases should be postponed..." said Natalya Orlova, an analyst at Alfa-Bank.
"Tariffs will be increased, there is no other way. Another question is how quickly it will happen," she said.
Inflation was 18.6 percent in 2001, compared with original government forecasts of 12-14 percent, later revised upwards.
This year, the government is aiming for inflation of 11-13 percent, although analysts expect it to be nearer 16 percent.
January has seen price rises keep up their pace. Consumer price inflation was 1.2 percent between January 1 and 14 compared with 1.6 percent in the whole of December.
The finance ministry expects inflation this month of 2.3 percent in month-on-month terms.
The planned tariff rises have been set at a ceiling of 35 percent and are to be broken into two stages, February and July.
But in a sign that introducing them will be difficult, the government last week postponed a planned 14 percent rise in tariffs, due to take effect from January 20.
It blamed the delay on inflation.
DELICATE COMPROMISE
Analysts said January was traditionally a month of high inflation.
"Higher tariffs do not have any negative impact on inflation in general, but a shift from January to another month is sensible... because the hike could have been inflationary in this particular month," said Alexei Moiseyev, a macroanalyst at Renaissance Capital.
Yuliya Tseplyayeva, an economist at ING Barings, said the government was helping itself by breaking the tariff rises into two portions, but saw tricky times ahead.
"A very delicate compromise has to be found. It is a very difficult task," she said. "This is a question of manoeuvering in a situation of low oil prices and when wishing to diminish the inflationary consequences."
She agreed tariff rises were unavoidable, partly because of low international energy prices. For example Gazprom, which accounts for a fifth of budget revenues, was finding it harder to cover its losses on the domestic market from export revenues.
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