Taiwan's manufacturing activity remained strong in June, although the pace of expansion eased from a 57-month high in the previous month.

The latest reading, which gauges manufacturing activity, came in at 55.2 in June, down from 56.1 in May, extending the current expansion to seven months, according to S&P Global data released on Wednesday.

Production rose at its fastest pace since July 2021 as manufacturers ramped up output to meet stronger new orders and build inventories amid supply disruptions linked to the conflict in the Middle East.

New business continued to increase at a substantial pace, supported by stronger domestic and overseas demand. Export orders posted their second-fastest rise since January 2022, driven by demand from Europe, Japan and the United States.

Manufacturers also expanded purchasing activity and built up inventories to guard against further supply disruptions and higher costs.

However, supplier delivery times continued to lengthen due to shipping disruptions and lower vendor stock levels.

Input cost inflation eased to a five-month low but remained elevated, with demand for inputs outpacing supply. Manufacturers continued to pass higher costs on to customers, with selling prices rising at one of the fastest rates in the past four-and-a-half years.

Employment declined marginally for a fourth consecutive month as firms remained cautious about hiring, while outstanding business increased at one of the fastest rates since early 2022.

"PMI data for June continued to point to a solid performance of Taiwan's manufacturing sector, with production growth hitting a near five-year record," Annabel Fiddes, economics associate director at S&P Global Market Intelligence, said.

"These efforts to build up safety stocks are driven by the challenging environment manufacturers find themselves in, as supply chains and prices remain under intense pressure due to the Middle East war," she added.

Manufacturers remained optimistic that output would increase over the coming year, with confidence rising to its second-highest level since May 2024, supported by strong demand for AI-related technology and semiconductors.

However, uncertainty surrounding the conflict in the Middle East and rising costs continued to weigh on sentiment.

The survey comes after Taiwan's central bank left its benchmark interest rate unchanged at 2.0% earlier in June, extending its pause for a ninth consecutive quarter despite strong economic growth and rising inflation.

Central bank Governor Yang Chin-long described the decision as "hawkish," signaling policymakers remain alert to mounting price pressures.

Taiwan's consumer inflation accelerated to 2.20% in May, surpassing the central bank's alert threshold and strengthening the case for further interest-rate increases.