(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% in the three months through June from a year ago, the Philippine Statistics Authority said Tuesday, slowing from 8.2% in the first quarter and compares with an 8.4% 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% from the previous quarter versus a median estimate of 0.4% gain. Household spending contracted by 2.7% last quarter from the January-March period. Inflation in the second quarter exceeded the central bank’s 2%-4% target and climbed to 6.4% in July, the fastest since October 2018.

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

“The full reopening of the economy will indeed generate more income-earning opportunities. But the purchasing power of that income may be eroded by the high inflation,” the economic planner said. 

Still, the Philippines stands out as among Asia’s fastest-growing economies, bolstering President Ferdinand Marcos Jr.’s plans to boost infrastructure, create jobs and bring down poverty.

The latest GDP print highlights challenges for the central bank in ramping up policy tightening to cool 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.

What Bloomberg Economics Says... 

“The Philippines’ deeper-than-expected slowdown in 2Q is unlikely to deter Bangko Sentral ng Pilipinas from raising interest rates by 50 basis points next week. The outlook for household spending -- the dominant growth engine -- remains solid overall”

Tamara Mast Henderson, Asean economist

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The Philippine peso was little changed at 11:37 a.m. local time while the benchmark stock index was down as much as 0.4%.

“Inflation remains the key consideration over growth,” said Jonathan Koh, economist at Standard Chartered Plc. 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. 

(Updates with Bloomberg Economics comments.)

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