U.S. labor costs rise solidly in the fourth quarter By Reuters

© Reuters. Construction workers on the job at a residential project during the outbreak of the coronavirus disease in California

WASHINGTON (Reuters) – U.S. labor costs increased more than expected in the fourth quarter amid a jump in wages, supporting views that inflation could accelerate this year.

The Employment Cost Index, the broadest measure of labor costs, rose 0.7% last quarter after advancing 0.5% in the third quarter. That lifted the year-on-year rate of increase to 2.5% from 2.4% in the third 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. Economists polled by Reuters had forecast the ECI climbing 0.5% in the fourth quarter.

Wages and salaries increased 0.9% after gaining 0.4% in the third quarter. They were up 2.6% year-on-year. The private sector accounted for the surge in wages and salaries. Benefits rose 0.6%, matching the third quarter’s increase.

Inflation is expected to pick up this year and breach the Federal Reserve’s 2% target, a flexible average, as weak readings last March and April drop from the calculation. Price pressures are also seen boosted by a strengthening in economic growth, driven by fiscal stimulus and the inoculation of more Americans against COVID-19.

Bottlenecks in the supply chain are expected to contribute to higher inflation. Recent manufacturing surveys have shown a surge in price measures for both raw materials and finished products.

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