Yellen says tentative signs of wage growth 'not yet definitive'

[ATLANTA] Federal Reserve Chair Janet Yellen said she is encouraged by tentative signs that wage growth is picking up, but these are "not yet definitive." "We have seen an increase in the growth rate of the employment-cost index, and the growth of average hourly earnings," Ms Yellen said at a press conference on Wednesday in Washington following a meeting of the policy-making Federal Open Market Committee.

"I would call these tentative signs of stronger wage growth. I think it is not yet definitive, but that's a hopeful sign."

As the rate of unemployment has declined, companies are finding they must offer higher pay to attract workers. Wages for private-sector employees rose 2.8 per cent in the 12 months through March, the biggest gain in more than six years, according to the employment cost index published by the Labour Department.

The US jobless rate stood at 5.5 per cent in May, down from 6.3 per cent a year earlier.

The committee has said it will raise interest rates when it sees further labor-market improvement and is "reasonably confident" that inflation will rise to its 2 per cent goal over time. Higher wages could strengthen that confidence.

Ms Yellen said she wants to see "additional strength in the labour market" for her to have confidence that inflation will move back up to 2 per cent, "but have made some progress."

The Fed's favourite price gauge, based on the personal consumption expenditures index, was unchanged in April from the prior month and was up 0.1 per cent from a year earlier. That was the smallest 12-month gain since October 2009.

BLOOMBERG