Paycheck growth quickens in quarter
WASHINGTON — Pay and benefits for America’s workers grew more quickly in the first three months of this year, a trend that could contribute to higher inflation and raise concerns at the Federal Reserve about the future path of price increases.
Compensation as measured by the government’s Employment Cost Index rose 1.2% in the JanuaryMarch quarter, up from a 0.9% increase in the previous quarter, the Labor Department said Tuesday. Compared with the same quarter a year earlier, compensation growth was 4.2%, the same as the previous quarter.
The increase in wages and benefits is good for employees, to be sure, but could add to concerns at the Fed that inflation may remain too high in the coming months. The Fed is expected to keep its key shortterm rate unchanged after its latest policy meeting concludes Wednesday.
Fed Chair Jerome Powell and other officials have recently backed away from signaling that the Fed will cut rates this year, after several months of higherthan-expected inflation readings. Big price increases for rents, car insurance and health care have kept inflation stubbornly above the Fed’s 2% inflation target.
As a result, Fed officials have swung from suggesting that they could cut rates as many as three times this year to emphasizing that they will wait until there is evidence that inflation is steadily declining toward 2% before making any moves.
“The persistence of wage growth is another reason for the Fed to take its time on rate cuts,” Paul Ashworth, an economist at Capital Economics, a consulting firm, wrote in a research note.
The pace of worker compensation plays a big role in businesses’ labor costs. When pay accelerates especially fast, it increases the labor costs of companies, which often respond by raising their prices. This cycle can perpetuate inflation.
In the past three quarters, productivity has increased at a healthy pace, which, if sustained, would enable companies to pay workers more without necessarily having to raise prices.