US labour costs up solidly in fourth quarter

[WASHINGTON] US labour costs rose solidly in the fourth quarter, which could keep the Federal Reserve on track to raise interest rates this year.

The Employment Cost Index, the broadest measure of labour costs, increased 0.6 per cent after an unrevised 0.7 per cent gain in the third quarter, the Labor Department said on Friday.

Economists polled by Reuters had forecast the employment cost index rising 0.6 per cent in the October-December 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.

It is seen as a better predictor of core inflation.

Wages and salaries, which account for 70 per cent of employment costs, increased 0.5 per cent in the fourth quarter. They had gained 0.8 per cent in the third quarter. The slowdown in the fourth quarter was flagged by a surprise decline in the average hourly earnings in December.

The Fed ramped up its assessment of the labour market on Wednesday, which economists interpreted as a signal for a mid-year rate hike.

In the 12 months through December, labour costs increased 2.2 per cent. 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 had increased 2.2 per cent in the 12 months through September.

Wages and salaries were up 2.1 per cent in the 12 months through December after a similar gain in the 12 months through September.

Benefit costs increased 0.6 per cent in the fourth quarter.

That followed a similar gain in the July-September period. They increased 2.6 per cent in the 12 months through December, the largest jump since March 2012, after rising 2.4 percent in the 12 months through September.

REUTERS