The Pay Increases Keep Coming

livemint.com:

The raises aren’t coming quite as hot anymore. Then again, neither is inflation. The Labor Department on Friday reported that its index of employment costs, which includes wages, salaries, bonuses and benefits, rose a seasonally adjusted 1% in the second quarter from the previous quarter, putting them 4.5% above the year-earlier level.

In the first quarter they were up 4.8% from a year earlier, and in the fourth quarter they were up 5.1%. But with the recent cooling in inflation, the second quarter’s deceleration in compensation gains count as an increase in workers’ spending power. On Thursday, the Commerce Department reported that its measure of consumer prices—the Federal Reserve’s preferred inflation measure—was up 3.7% last quarter from a year earlier.

The second quarter marked the first time employment-cost increases have outstripped inflation since the first quarter of 2021. Federal Reserve policy makers will be pleased by Friday’s report. The employment-cost index is its favored gauge of labor costs because, in addition to including benefit costs, and unlike measures such as average hourly earnings, it adjusts for changes in the composition of the job market.

Throw in the separate report from the Commerce Department on Friday that showed prices cooled more than economists had expected in June and the case for no further rate increases is looking stronger. Moreover, the connection between the tight labor market and still-high inflation readings is looking a bit more tenuous. So-called supercore inflation—the change in services prices excluding rent-derived housing costs—has also been cooling more quickly than compensationcosts lately.