Wage growth in the US complicates the Fed's inflation-fighting efforts

According to Labor Department data, the Employment Cost Index (ECI), a key wage indicator, showed an increase of 1.1%, a slight rise compared to the 1% increase in the second quarter. However, when adjusted for rapid inflation, total wage growth fell to 0.6% compared to the same period of the previous year, marking a significant decline from the 1.6% increase in the second quarter.

Economists are pointing to a cooling trend in average wages. Excluding bonuses and incentive payments, salaries and wages for private-sector employees recorded an increase of only 0.9%, compared to the 1.1% increase in the previous quarter. The ECI is a key metric for Federal Reserve officials as it reflects wage changes in the same job roles over time.

In the fall of last year, the growth in wages and benefits tracked by the ECI peaked at 5.1%. However, rapid inflation has eroded the purchasing power of Americans. The Fed's goal is to slow inflation to facilitate growth in inflation-adjusted income, even if it means smaller wage increases. Fed Chair Jerome Powell has suggested that annual wage growth of approximately 3.5% is consistent with the central bank's 2% inflation target.

By October of this year, the inflation rate in Europe had fallen to 2.9% due to the impact of falling fuel prices, but growth remained stagnant. Rising interest rates and an uncertain economic outlook could lead the Federal Reserve to remain on the sidelines. Meanwhile, the US experienced strong wage growth this summer, further complicating the Fed's fight against inflation.

News Source: 12punto