Employment Cost Index Q4 2022:

Labor costs increased at a slower pace than expected in the fourth quarter. This suggests that inflationary pressures on business owners are at least leveling off.

The employment cost index, a barometer the US Federal Reserve is watching for signs of inflation, rose 1% from October to December, the Labor Department reported on Tuesday. That’s just below the Dow Jones forecast of 1.1% for him, and below his 1.2% in the third quarter. It was also his lowest quarterly profit in a year.

Wages and salaries also fell 0.3 percentage points over the period, rising 1%, while benefit costs rose just 0.8% from 1% in the previous quarter.

Civil servant compensation slowed to a 1% increase from 1.9% in the third quarter, growing at a much slower pace than in the third quarter.

Fed officials see the ECI as a key inflation indicator because it adjusts for high-demand jobs and large wage increases in certain industries, such as those most affected by the pandemic.

The fourth-quarter numbers come on the same day that the Federal Open Market Committee, which sets interest rates, begins its two-day policy meeting. The market assigns a near certainty that the FOMC will approve his 0.25% rate hike before Wednesday’s recess.

But the greater focus will be on what officials are implying about the future of monetary policy.

The market expects another 1/4 point rate hike in March, followed by a pause and one or two rate cuts by the end of the year. Fed officials are against the idea of ​​any easing in 2023, but may change their minds if inflation continues to fall.

“The Fed will likely continue to raise rates at its next few meetings, but we expect wage growth to slow further in the coming months as officials persuade them to pause the tightening cycle after the March meeting. We do,” wrote Senior Andrew Hunter. U.S. economist at Capital Economics.

The next big data point is Friday when the Department of Labor releases its monthly nonfarm payroll report.

Economists expect January employment to rise by 187,000. Meanwhile, the average hourly wage is projected to grow by 0.3% per month and 4.3% year-on-year after he increased by 4.6% at the end of 2022.