Agencies
US labour costs increased moderately in the second quarter as private sector wages grew at the slowest pace in 3-1/2 years, more evidence that inflation was firmly on a downward trend and could help facilitate an interest rate cut in September.
The report from the Labour Department on Wednesday followed data last week showing inflation subsided considerably last quarter, with sub-3% readings in all the measures. Labour costs are likely to cool further as the jobs market continues to ease. The Federal Reserve on Wednesday kept its benchmark overnight interest rate in the 5.25%-5.50% range, where it has been since last July. However, it opened the door to reducing borrowing costs as early as its next meeting in September.
"Wages and salary increases in private industry are more in line with where Fed officials would like it to be,” said Christopher Rupkey, chief economist at FWDBONDS in New York. "The economy is gradually returning to normal. Cooler wages give the green light to Fed rate cuts.”
The employment cost index (ECI), the broadest measure of labour costs, increased 0.9% last quarter after rising by an unrevised 1.2% in the first quarter, the Labour Department’s Bureau of Labour Statistics said.
Economists polled by Reuters had forecast the ECI would rise 1.0%. Labour costs advanced 4.1% in the 12 months through June, the smallest gain since the fourth quarter of 2021, after climbing 4.2% in the year through March.
Annual labour cost growth has slowed from 4.5% in June 2023.The ECI is viewed by policymakers as one of the better measures of labour market slack and a predictor of core inflation because it adjusts for composition and job-quality changes. The U.S. central bank has a 2% inflation target.