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WASHINGTON: US labor costs increased strongly in the second quarter as a tight jobs market continued to boost wage growth, which could keep inflation elevated for a while.

The Employment Cost Index, the broadest measure of labor costs, rose 1.3% last quarter after accelerating 1.4% in the January-March period, the Labor Department said on Friday.

Economists polled by Reuters had forecast the ECI would rise 1.2% in the second quarter. Labor costs surged 5.1% on a year-on-year basis after increasing 4.5% in the first quarter.

The ECI is widely viewed by policymakers and economists as one of the better measures of labor market slack and a predictor of core inflation, as it adjusts for composition and job-quality changes. It is being closely watched for signs of whether wage growth has peaked as economists and investors try to gauge the pace of the Federal Reserve’s interest rate hikes.

US consumer spending beats expectations in June; inflation accelerates

The US central bank on Wednesday raised its policy rate by another three-quarters of a percentage point. It has now hiked that rate by 225 basis points since March.

There have been mixed signals on wages.

While annual growth in average hourly earnings in the Labor Department’s monthly employment report slowed in the first half of the year, the Atlanta Fed’s wage tracker accelerated. The Fed’s “Beige Book” report this month showed that “most districts continued to report wage growth,” and “a quarter of districts indicated wage growth will remain elevated for the next six months.”

There were 11.3 million job openings at the end of May, with nearly two open positions for every unemployed person.

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US labor costs increase strongly in the second quarter

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