MANILA (BLOOMBERG) – The Philippines’ economic expansion was slower-than-expected in the second quarter as the fastest inflation in almost four years hurt consumption, which is a key growth driver.

Gross domestic product grew 7.4 per cent in the three months through June from a year ago, the Philippine Statistics Authority said on Tuesday (Aug 9), slowing from 8.2 per cent in the first quarter and compares with an 8.4 per cent median estimate in a Bloomberg survey.

“The global headwinds, particularly imported inflation, particularly on energy and food contributed to noticeable slowdown,” Economic Planning Secretary Arsenio Balisacan said at a briefing in Manila.

Output shrank 0.1 per cent from the previous quarter versus a median estimate of 0.4 per cent gain, falling for the first time in a year. Household spending contracted by 2.7 per cent last quarter from the January-March period. Inflation in the second quarter exceeded the central bank’s 2 per cent-4 per cent target and climbed to 6.4 per cent in July, the fastest since October 2018.

While the second-quarter performance is in line with officials’ forecast for at least 6.5 per cent growth this year, Balisacan said, the expansion in the second half may be slower than the first semester.

The latest GDP print may convince the central bank to slow its policy rate tightening aimed at cooling inflation. Central bank governor Felipe Medalla had flagged either a quarter- or half-point key rate hike on Aug 18, and possibly more for the remainder of the year.

The Philippine peso fell 0.1 per cent in early trading Tuesday, while the benchmark stock index was down as much as 0.4 per cent.

“Inflation remains the key consideration over growth,” said Jonathan Koh, economist at Standard Chartered. While the latest number “may lead to some paring back of a 50 basis points hike expectation,” Koh said he still sees a half-point increase this month.