Reuters - U.S. labor costs increased more than expected in the first quarter amid a rise in wages and benefits, confirming the surge in inflation early in the year that will likely delay a much- anticipated interest rate cut later this year.
The pick-up in labor costs reported by the Labor Department on Tuesday was despite signs of some easing in labor market conditions as supply rises. Adding to the darkening inflation picture, house prices accelerated in February amid tight supply. Housing has been a key driver of inflation through higher rents.
Federal Reserve officials started a two-day policy meeting on Tuesday. The U.S. central bank is expected to leave its benchmark overnight interest rate unchanged in the current 5.25%-5.50% range, where it has been since July.
The Employment Cost Index (ECI), the broadest measure of labor costs, increased 1.2% last quarter after rising by 0.9% in the fourth quarter, the Labor Department's Bureau of Labor Statistics said.
Economists polled by Reuters had forecast the ECI would advance 1.0%. Labor costs increased 4.2% on a year-on-year basis after rising by the same margin in the fourth quarter. They have declined from a peak of 5.1% at the end of 2022. Some economists blamed the quarterly rise in wages on challenges adjusting the data at the start of the year for seasonal fluctuations.
The ECI is viewed by policymakers as one of the better measures of labor market slack and a predictor of core inflation because it adjusts for composition and job-quality changes.
The report followed data last week that showed price pressures heating up in the first quarter.
Wages increased 1.1% in the January-March quarter after advancing by the same margin in the prior three months. They jumped 4.4% year-on-year after rising 4.3% in the fourth quarter. Private sector wages rose 1.1% after gaining 1.0% in the prior quarter. They gained 4.3% in the 12 months through March. Wage gains remain above their pre-pandemic levels.
There were big increases in wages in the transportation and warehousing industry, professional and business services, wholesale trade, educational services. Retail wages were unchanged as were those in the finance and insurance sector.
Annual compensation costs increased 5.3% for union workers and were up 3.9% for non-union workers. Wages and salaries for union workers shot up 6.3% compared to the 4.1% rise for non-union workers in the 12 months through March.
State and local government wages accelerated 1.4% after rising 1.1% in the prior quarter. They surged 5.0% year-on-year after gaining 4.7% in the fourth quarter.
With fewer workers quitting their jobs in search of greener pastures and increasing labor supply, driven by a rise in immigration over the past year, economists expect wages to gradually trend lower this year and bring inflation closer to the Fed's 2% target. Though job growth accelerated in the first quarter, surveys including from the NFIB and Institute for Supply Management suggest a moderation ahead.
Sumber : Reuters
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