US labour costs increased by more than expected in the first quarter, in the latest sign of resilience in the jobs market, despite the Federal Reserve’s efforts to bring down inflation.
The labour department’s employment cost index, which tracks wages and benefits paid by private and public sector employers, rose 1.2 per cent in the first three months of this year, up from 1 per cent in the last three months of 2022 and higher than consensus forecasts of 1.1 per cent.
Total pay for civilian workers rose 4.8 per cent year on year — down slightly from the previous quarter, but still well above its pre-pandemic average of 2.2 per cent.
The index is closely watched by policymakers as one of the most reliable indicators of wage growth, which is one of the biggest contributors to inflation, particularly in the service sector.
Pay rises in the service sector slowed slightly compared with the previous quarter, from 1.2 per cent to 1.1 per cent.
The Fed has been battling to bring inflation back towards its 2 per cent target after consumer prices hit a 40-year high last year. It has lifted its benchmark interest rate from close to zero at the beginning of last year to almost 5 per cent today, and is widely expected to announce a further 0.25 percentage point hike next week.
However, while most observers are treating next week’s rate rise as a fait accompli, there is less consensus on whether the central bank will need to go further.
Data released earlier this week showed economic growth slowed dramatically in the first quarter, and jobs growth has begun to slow. However, Friday’s pay figures highlighted the ongoing tightness in the labour market, and separate inflation data provided a further reminder that some price pressures remain worryingly high.
The so-called Core PCE index — the Federal Reserve’s favoured inflation measure — was higher than forecast at 4.6 per cent year on year in March, while February’s number was revised upward to 4.7 per cent.
