US labour costs power ahead in third quarter as wage surge

[WASHINGTON] US labour costs increased by the most since 2001 as companies boosted wages and benefits amid a severe worker shortage, suggesting inflation could remain high for sometime.

The Employment Cost Index, the broadest measure of labour costs, surged 1.3 per cent last quarter after rising 0.7 per cent in the April-June period, the Labor Department said on Friday. The largest gain since 2001 reflected an increase across industries.

Labour costs powered ahead 3.7 per cent on a year-on-year basis, the largest rise since the fourth quarter of 2004, after increasing 2.9 per cent in the second quarter.

"While wage increases were initially concentrated in lower wage industries, more recently wage pressures have been broadening across industries," said Veronica Clark, an economist at Citigroup in New York.

"Upward pressure on wages reaching relatively higher wage industries would suggest a greater chance that rising labor costs, along with rising prices for various other inputs, are passed on through higher consumer prices."

The ECI is widely viewed by policymakers and economists as one of the better measures of labour 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 advancing 0.9 per cent in the third quarter.

Wages and salaries soared 1.5 per cent after increasing 0.9 per cent in the second quarter. They were up 4.2 per cent year-on-year. Benefits gained 0.9 per cent after rising 0.4 per cent in the April-June quarter.

The Covid-19 pandemic has upended labor market dynamics, creating an economy-wide acute shortage of workers. There were 10.4 million job openings at the end of August.

The Federal Reserve's preferred inflation gauge, the personal consumption expenditures (PCE) price index excluding food and energy, rose at a 4.5 per cent rate in the third quarter after increasing at a 6.1 per cent pace in the April-June quarter, the government reported on Thursday. The US central bank has a flexible 2 per cent inflation target.

REUTERS