The manufacturing sector took off strong in the new year, with firms raising their production levels and hiking their buying activity in response to a sharp rise in new orders in January, according to the latest report from S&P Global.

The Philippine Manufacturing Purchasing Managers’ Index (PMI) grew to a seven-month high of 53.5 in January, up from December’s 53.1 and posting growth for the third month running. Operating conditions improved solidly, and the rate of expansion was strong in a historical context, the financial information service provider said.

Output expanded for the fifth month running and production levels rose sharply amid increasing demand for Filipino manufacturing goods. Similarly, new orders also rose at a faster pace in January.

Foreign demand for goods manufactured in the Philippines also picked up in January. Growing international client numbers and stronger demand from China helped revive exports for the first time in 11 months.

The latest expansion in buying activity—among the fastest rate on record—reflected firms’ willingness to meet growing demand. Furthermore, with the sustained rise in client activity, manufacturing companies reported an increase in the levels of unfinished work in January, marking only the fifth month of growth in backlogs of work since the series began in January 2016.

Stronger demand conditions also resulted in manufacturers relying on inventories. For the first time in a year, holdings of post-production inventories fell as firms utilized stocks to meet higher new orders. That said, the pace of destocking was only slight.

Encouragingly, while demand continued to strengthen, operating expenses did not rise as cost pressures moderated further in January. The pace of input price inflation was the slowest in two years and below the survey average, with charges levied also rising at a softer rate than that seen in over a year.

The moderation in cost inflation can also be partly linked to easing supply chain pressures as improved infrastructure, more vendors, and the lifting of port restrictions helped with delivery times, noted S&P Global.

However, despite reporting a second month of growth, hiring activity across the Filipino manufacturing sector remained weak.

The continued positive performance of the manufacturing sector in January bolstered optimism levels across surveyed business. Improving from a four-month low in December, the degree of confidence was stronger than the historical average.

“Overall, strong domestic demand fed into higher optimism for the year ahead. Moreover, the lack of COVID restrictions, greater investment in new products and undertaking new projects aided hopes of a prosperous year for the Filipino manufacturing sector,” said the report.

As this developed, ING Think said Philippine inflation is expected to dip to 7.8% year-on-year in January, down slightly from 8.1% in the previous month. However, the global financial analyst expects inflation to remain at elevated levels as supply shortages persist. It observed how low domestic production has resulted in surging prices for basic food commodities, while still-elevated global energy prices have led to high utility costs and rising gasoline prices.