MANILA: The Philippines’ economy grew faster than expected in the third quarter, official data showed Thursday, but the government warned inflation remained a “major challenge.”

The 5.9 percent on-year expansion was well up from the 4.3 percent in the previous three months and was far better than the 4.7 percent predicted in a Bloomberg survey.

A sharp pick up in government spending was a key driver in the latest bump, the Philippine Statistics Authority data showed.

However, elevated inflation and a string of interest rate hikes–the central bank has lifted rates 450 basis points since May 2022–weighed on growth in household spending, which slowed for a second straight quarter, to five percent.

“Inflation is still a major challenge,” Economic Planning Secretary Arsenio Balisacan told reporters, adding that October’s slowdown in prices to 4.9 percent was still above the government’s 2-4 percent target.

Harvests boosted the supply of rice and vegetables last month, taking the steam out of food costs but Balisacan hoped the reduced rate would help consumer spending in the fourth quarter and “in the quarters ahead.”

The acceleration in July-September followed three straight quarters of slowing growth and Balisacan said the government’s annual target of 6-7 percent was “still doable.”

But the economy would need to grow 7.2 percent in the current period to reach the lower end of that range.

While the third-quarter showed a strong rebound, Capital Economics senior Asia economist Gareth Leather warned “we don’t expect this strength to last.”

He said high interest rates and weaker global growth would sap the Philippine economy of strength in the new year.