The numbers: The employment cost index rose a sharp 1% in the fourth quarter, giving little comfort to a Federal Reserve that worries a rapid rise in wages could make it harder to tame inflation.
Economists polled by The Wall Street Journal had forecast a 1.1% increase.
Labor costs grew more slowly for the third quarter in a row, but they are still rising far faster than the Fed would like.
Compensation climbed at a 5.1% clip in the 12 months ended in December — up from 5% in the prior quarter — to leave the increase in worker pay near the highest level in 40 years.
By contrast, wages and benefits rose an average of 2.7% a year from 2017 to 2019.
Read: Workers love big raises. The Fed, not so much. Why pay has a big role in the inflation fight.
Key details: Wages advanced 1% in the fourth quarter, down from 1.3% in the prior period. They make up about 70% of employment costs.
The increase in wages during the 12 months ended in December was unchanged at 5.1%.
Benefits increased at a 0.8% pace in the fourth quarter. They make up the rest of worker compensation.
The 12-month increase in benefits was unchanged at 4.9%.
The ECI reflects how much companies, governments and nonprofit institutions pay employees in wages and benefits.
The big picture: Senior Fed officials want to see a tight labor market loosen up and wage growth decelerate further to help ensure inflation returns to pre-pandemic levels of 2% or so.
The central bank on Wednesday is expected to raise a key interest again. It’s likely to keep raising rates — or keep them high for longer — until it sees more signs in the ECI or other wage trackers that labor costs are slowing.
The rate of increase in consumer prices slowed to 6.5% at the end of 2022 from a 40-year high of 9.1% last summer, but that’s still more than triple the Fed’s inflation goal.
Market reaction: The Dow Jones Industrial Average
and S&P 500
were set to open slightly higher in Tuesday trades. Stocks fell on Monday.