US: Risk of higher compensation costs spurring inflation is growing - Wells Fargo

The Employment Cost Index (ECI) rose 0.7% during the fourth quarter. Analysts at Wells Fargo point out that over the past year, employment costs are up 2.9%, the strongest pace of this expansion. They see inflation pressures as still tame.

Key Quotes: 

“Compensation costs grew a touch slower in Q4, with the ECI rising 0.7% after a 0.8% rise in Q3. The more modest gain can be traced to wages & salaries, particularly a more tepid increase for government employees.”

“Government workers, however, saw another big jump in benefits (+1.0%). Private sector benefits rose 0.5%, but employers placed greater focus on raising the more visible part of pay, wages & salaries (+0.7%).”

“Although slightly softer than in Q3, compensation costs have been gradually firming, with the ECI up 2.9% over the past year.”

“With the labor market continuing to tighten, however, the risk of higher compensation costs spurring inflation is growing.”