U.S. labor costs surge in first quarter fueling inflation
WASHINGTON, April 29 (Reuters) - U.S. labor costs surged by the most in 21 years in the first quarter, pointing to rising wage inflation and supporting the Federal Reserve's aggressive monetary policy stance.
The Employment Cost Index, the broadest measure of labor costs, jumped 1.4% last quarter after advancing 1.0% in the October-December period, the Labor Department said on Friday. Last quarter's increase was the largest since the current series started in 2001.
Labor costs soared 4.5% on a year-on-year basis after increasing 4.0% in the fourth quarter.
The ECI is widely viewed by policymakers and economists as one of the better measures of labor market slack and a predictor of core inflation as it adjusts for composition and job quality changes. Economists polled by Reuters had forecast the ECI climbing 1.1% in the first quarter.
The labor market is seen as being at or near maximum employment. There were a near record 11.3 million job openings at the end of February, forcing companies to boost compensation to attract scarce workers.
The Federal Reserve is expected to hike interest rates by 50 basis points next Wednesday. The U.S. central bank raised its policy interest rate by 25 basis points in March, and is soon likely to start trimming its asset holdings. Annual inflation by all measures has overshot the Fed's 2% target.
Wages and salaries increased 1.2% last quarter after rising 1.0% in the fourth quarter. They were up 4.7% year-on-year. But high inflation eroded the gains for employees. Inflation adjusted wages fell 3.6% year-on-year. Benefits jumped 1.8% after increasing 0.9% in the October-December quarter.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)