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US labour costs rise solidly; wage growth picks up

[WASHINGTON] US labour costs rose solidly in the first quarter as wages in the private sector increased, which could keep the Federal Reserve on track to raise interest rates this year.

The Employment Cost Index, the broadest measure of labour costs, advanced 0.7 per cent - the largest gain since the third quarter of 2014 - after an unrevised 0.5 per cent rise in the fourth quarter, the Labour Department said on Thursday.

Economists polled by Reuters had forecast the employment cost index rising 0.6 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.

Unlike the average hourly earnings (AHE) measure in the employment report, the ECI covers a broad range of workers and is weighted to eliminate composition effects, which economists say have distorted the AHE.

The ECI is seen as a better predictor of core inflation.

Wages and salaries, which account for 70 per cent of employment costs, rose 0.7 per cent in the first quarter. They had increased 0.6 per cent in the fourth quarter.

Private sector wages and salaries increased 0.7 per cent, the largest rise since the third quarter of 2014, after gaining 0.5 per cent in the prior quarter.

In the 12 months through March, labour costs jumped 2.6 per cent, the largest rise since the fourth quarter of 2008. That is still below the 3 per cent threshold that economists say is needed to bring inflation closer to the Fed's 2 per cent target.

Labour costs increased 2.2 per cent in the 12 months through December.

Private sector wages and salaries were up 2.8 per cent in the 12 months through March, the biggest gain since the third quarter of 2008, after rising 2.2 per cent in the 12 months through December.

Benefit costs increased 0.6 per cent in the first quarter. They increased 2.7 per cent in the 12 months through March after rising 2.6 per cent in the 12 months through December.

REUTERS