MANILA, Philippines -- Faltering consumption dragged annual economic growth down to 4.6 percent in the second quarter but a rate rise was still expected later Thursday as rising inflation remains the biggest threat.

Officials cast doubt on this year's full-year growth goal of 5.5-6.4 percent, already revised down and a sharp drop from the three-decade peak of 7.2 percent achieved in 2007, as soaring annual inflation eats into consumer demand.

The second-quarter annual growth figure was the weakest in more than three years.

"Achieving the full-year target will be a tough challenge as we continue to face high food and oil prices," Socio-economic Planning Secretary Ralph Recto told reporters.

"Economic growth in the Philippines as well as those of Asian neighbors was dragged down by high inflation and slower growth among advanced economies which hurt consumer demand."

The economy grew a seasonally adjusted 2.0 percent in the second quarter, in line with expectations, but personal consumption dropped 0.3 percent from the previous quarter. Services also fell 0.5 percent from the January-March period, the first contraction since 1995.

Overall, the economy grew just 4.6 percent in the first half after the government revised down annual first-quarter gross domestic product (GDP) growth to 4.7 percent from a previously reported 5.2 percent.

LAST RATE RISE OF 2008?

Despite the economy's dour performance, analysts said the central bank would raise rates by 25 basis points later Thursday, its third straight rate increase, as the risk of further price leaps looms.

"I think for now the argument that slower growth should mean that the central bank should not hike rates today is a flawed one because inflation still lingers around the corner," said Vishnu Varathan, an analyst with Forecast Pte.

"Growth without price stability is probably not going to be a sustained one."

But some economists said a rate rise later Thursday might be the last for the year amid expectations inflation will peak in the fourth quarter and growth concerns will take center stage.

The central bank said Thursday it expected annual inflation in August to range 11.8-12.6 percent, possibly topping the near 17-year high of 12.2 percent hit in July.

"We will remain watchful of developments to make sure that our policy stance is consistent with our price stability mandate," governor Amando Tetangco said.

The monetary authority earlier said annual inflation would likely peak in October but would not exceed 13 percent.

"The weak Q2 GDP figure and the expectation that inflation may be peaking out may probably allow the central bank to go on hold for the rest of the year as growth concerns outpace inflationary risk," said Song Seng Wun, an economist at CIMB-GK Research.

"Before the revision, we were looking at growth of 4.8 percent for the Philippines for this year. Probably even 4.0 percent may be a bit tough. And we may have to relook at 2009 since my earlier number was 3.9 percent. The downside risk is both for the 2008 and 2009 forecasts."

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