US labor cost growth picks up speed in the first quarter despite rising pay.

A spike in pay and benefits in the first quarter of this year caused U.S. labor costs to rise more than anticipated, confirming the early-year jump in inflation that is projected to postpone the much-awaited interest rate cut later this year.

Despite indications of some improvement in labor market conditions as supply increases, the Labor Department on Tuesday reported an increase in labor costs. The picture of inflation is becoming more bleak as house prices rose in February due to a shortage of available inventory.

Housing has contributed significantly to inflation by raising rents.
On Tuesday, representatives of the Federal Reserve began a two-day policy conference. It is anticipated that the U.S. central bank would maintain its benchmark overnight interest rate in the same range as it has been since July, which is 5.25% to 5.50%.

“On balance, today’s (labor costs) reading is not the end of the world for the Fed, but it is yet another data point that suggests the inflation slowdown that began this time last year stalled out in the first quarter of 2024,” said Michael Pugliese, a senior economist at Wells Far

The Labor Department’s Bureau of Labor Statistics said that the Employment Cost Index (ECI), the most comprehensive indicator of labor expenses, rose 1.2% in the most recent quarter following a 0.9% increase in the fourth quarter.

According to Reuters polled economists, the ECI would increase by 1.0%. Labor expenses went up 4.2% annually after increasing by the same amount in the fourth quarter. From a peak of 5.1% at the end of 2022, they have decreased. The quarterly salary increase was attributed by some economists to difficulties in correcting the statistics for seasonal variations at the beginning of the year.

Policymakers consider the ECI to be one of the more accurate indicators of labor market slack and a core inflation forecast due to its ability to account for changes in employment quality and mix.
The news came after data released last week indicated that the first quarter saw an increase in price pressure.
Since March 2022, the Fed has increased the policy rate by 525 basis points. The financial markets have shifted their expectations on this year’s rate drop from June to September.
Some experts, who think the job market would slow down significantly in the upcoming months, are still expecting that borrowing prices may be decreased in July. Some think there is less time left for the Fed to begin its cycle of easing.