WASHINGTON (Reuters) — U.S. labour costs increased steadily in the first quarter as a jump in transportation and manufacturing wages was offset by small gains elsewhere, pointing to moderate inflation pressures even as the labour market tightens.
The report from the Labor Department on Tuesday came on the heels of data on Monday showing a key measure of inflation retreated further from the Federal Reserve's two per cent inflation target in March. The continued signs of benign price pressures support the U.S. central bank's recent decision to suspend further interest rate increases this year.
The Employment Cost Index, the broadest measure of labour costs, rose 0.7 per cent after advancing by the same margin in the fourth quarter, the Labor Department said. That lowered the year-on-year rate of increase in the ECI to 2.8 per cent.
Labour costs rose 2.9 per cent in the fourth quarter, which was the largest gain since June 2008.
Economists polled by Reuters had forecast the ECI would rise 0.7 per cent in the January-March period.
The ECI is widely viewed by policymakers and economists as one of the better measures of labour market slack. It is also considered a better predictor of core inflation.
The dollar held at lower levels against a basket of currencies after the release of the data. Prices of U.S. Treasuries were trading lower while U.S. stock index futures were mixed.
The government reported on Monday the personal consumption expenditures (PCE) price index excluding the volatile food and energy components increased 1.6 per cent in the 12 months through March, the smallest increase since January 2018 and down from 1.7 per cent in February.
The so-called core PCE index is the Fed's preferred inflation measure. Fed officials were scheduled to start a two-day meeting policy meeting later on Tuesday. The Fed in March dropped its forecasts for any rate increases this year, halting a three-year policy tightening campaign. The central bank raised borrowing costs four times in 2018.
Gains in labour costs have remained moderate despite growing anecdotal evidence of companies struggling to find workers. The unemployment rate is hovering at 3.8 per cent, close to the 3.7 per cent that Fed officials projected it would be by the end of the year.
In the first quarter, wages and salaries, which account for 70 per cent of employment costs, increased 0.7 per cent after rising 0.6 per cent in the prior period. Wages and salaries were up 2.9 per cent in the 12 months through March. That followed a 3.1 per cent gain in the year through December.
Private sector wages and salaries rose 0.7 per cent in the first quarter, matching the prior period's increase. They were up 3.0 per cent in the 12 months through March after rising 3.1 per cent in the year through December.
Wages in the manufacturing sector rose 0.9 per cent in the first quarter, accelerating from 0.6 per cent in the prior period. Employers in the transportation industry boosted wages by one per cent last quarter, up from 0.5 per cent in the October-December period. Wage gains were, however, slow in the professional and business services, education and health services sectors and in the leisure and hospitality industry.
State and local government wages and salaries increased 0.6 per cent after a similar gain in the fourth quarter.
Benefits for all workers rose 0.7 per cent in the January-March quarter, matching the fourth quarter's increase. They were up 2.6 per cent in the 12 months through March after rising 2.8 per cent in the year through December.
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