U.S. labor costs rise, point to more steady inflation

WASHINGTON (Reuters) - U.S. labor costs rose in the second quarter and were higher in the prior period than previously estimated, a sign of inflationary pressure that could be a relief to policymakers worried about unusually low inflation.

Carpenter's work on a housing site at Mid-Atlantic Builders "The Villages of Savannah" development in Brandywine, Maryland May 31, 2013. REUTERS/Gary Cameron

The Employment Cost Index increased 0.5 percent in the April-June period, matching the gain registered in the first quarter which the government had initially estimated at 0.3 percent, Labor Department data showed on Wednesday.

The change in the first quarter reading was largely due to corrections in the data series between September and March.

These led the government’s estimate of the cost of employee benefits to increase 0.6 percent in the January-March period, rather than the 0.1 percent gain initially reported. In the second quarter, the cost of employee benefits rose 0.4 percent.

The revisions and corrections left the cost of labor substantially higher in the first half of the year than analysts had expected.

Economists polled by Reuters had expected a 0.4 percent increase in overall labor costs during the second quarter.

The report points to a little more inflationary pressure in the U.S. economy. In the 12 months through June, compensation costs advanced 1.9 percent.

That is close to the Fed’s 2 percent inflation target. Labor costs are a key contributor to inflation.

Wages and salaries, which account for about 70 percent of employment costs, increased 0.4 percent in the second quarter after rising 0.5 percent in the first three months of the year.

Several Fed policymakers have warned that inflation is running too low. Fed Chairman Ben Bernanke said earlier this month that the U.S. central bank wanted inflation to pick up before it tightened monetary policy.

Reporting by Jason Lange; Editing by Paul Simao