Labor costs in the U.S. rose solidly in the first quarter

It is apparent that inflation may continue to rise for some time to come in the United States as U.S. labor costs rose during the first quarter amid strong wages gains and a tight labor market.

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There was an increase of 1.2% in the Employment Cost Index, a broad measure of the cost of labor, in the last quarter after an increase of 1.1% in the October-December period, the Labor Department announced on Friday.

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By comparison, economists polled by Reuters forecasted an increase of 1.1% in the ECI. On a year-over-year basis, labor costs increased by 4.8% from the fourth quarter of last year after rising by 5.1% in the third quarter.

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There is a widespread view among policymakers and economists that the Employment Change Index is one of the better measures of labor market slack as well as an indicator of core inflation since it is adjusted for changes in job composition and job quality.

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It is anticipated that the Federal Reserve will raise interest rates by another 25 basis points next week, possibly the last hike in the U.S. central bank's fastest monetary tightening cycle since the 1980s. Since March of last year, the Federal Reserve has increased its policy rate by 475 basis points bringing it from a near-zero level to the current range of 4.75%-5.00%.

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Despite the Labor Department's monthly employment report showing a slowdown in the annual growth of average hourly earnings, the Atlanta Fed's wage tracker shows an elevated level of growth. It was noted in the Federal Reserve's "Beige Book" report last week that "wages have shown some moderation, but remain elevated." In February, there were 1.7 job openings for every unemployed person.

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After increasing by the same margin during the fourth quarter, wages and salaries increased by 1.2% in the last quarter. Compared to the prior quarter, they were up 5.0% year-on-year after increasing 5.1% in the previous quarter.

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In the private sector, wages increased by 1.2%, which is similar to the increase in the fourth quarter. In terms of year-over-year growth, they increased by 5.1%.

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Compared to the prior quarter, state and local government wages increased by 0.9% after rising by 1.1% previously. In terms of year-on-year growth, they grew by 4.7%.

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As a result, inflation-adjusted wages for all workers remained unchanged on a year-over-year basis in the first quarter after declining by 1.2% in the fourth quarter. Benefits increased by 1.2% in the third quarter after rising by 1.0% in the October-December period. Compared to the same period last year, they increased by 4.5%.