(Recasts first sentence, adds May inflation data breakdown, government policy context, deficit targets)
By Hugh Bronstein
BUENOS AIRES, June 15 (Reuters) - Argentine consumer prices boomed 4.2 percent higher in May, the government's newly revamped statistics agency said on Wednesday, outpacing market expectations and underscoring the need to tame the inflation ravaging Latin America's No. 3 economy.
The market had expected a 3.8 percent increase in consumer prices, according to a Reuters poll of analysts, which alone would have put Argentina on course for one of the world's highest yearly inflation rates.
It was the first official inflation reading since President Mauricio Macri took office in December. He shut down the publication of economic numbers while his team reorganized the government's Indec statistics agency after years of publishing data widely dismissed by the markets as inaccurate.
Prices of everything from heating fuel to bus fares shot higher after Macri reduced subsidies early in his term.
He lifted currency controls, which weakened the peso by about 30 percent and increased the price of imported goods.
Macri says his free-market policies will spur investment and pull the economy out of recession after eight years of heavy trade and currency controls imposed by previous leader Cristina Fernandez. But the results have been slow to arrive as families get squeezed between rising prices and weak job prospects.
Macri has reduced energy and transportation subsidies as part of his bid to cut the 5.8 percent fiscal deficit he inherited from Fernandez.
Indec said the two sectors with the highest price increases in May were basic services, up 5.2 percent, and transportation, up 5.6 percent. The overall inflation reading factored in consumer prices in the greater Buenos Aires capital area.
"It's a positive development in that they are resuming the publication of data. This is another step toward the normalization of the economy," said Alberto Ramos, head of emerging markets research at Goldman Sachs in New York.
"The 4.2 figure shows that the key challenge going forward is to bring inflation down as quickly as possible," he added.
Upon taking office Macri settled a decade-old lawsuit with bond-holders, which allowed the country to get out of default and once again tap the international capital markets.
His inflation-fighting plan involves issuing debt rather than following in Fernandez's footsteps of printing money to finance a fiscal deficit. Macri hopes to bring the deficit down to 4.8 percent of gross domestic product this year and 3.3 percent in 2017.
Private economists say both deficit targets will be difficult for the government to hit. (Additionnal reporting by Jorge Otaola, Eliana Raszewski and Walter Bianchi; Editing by Steve Orlofsky and Matthew Lewis)