Pay and benefits for America’s workers grew at a healthy but more gradual pace in the final three months of 2022, a third straight slowdown, which could help reassure the Federal Reserve that wage gains won’t fuel higher inflation.
Wages and benefits, such as health insurance, grew 1% in the October-December quarter compared with the previous three months. That marked a solid gain, though it was slower than the 1.2% increase in the July-September quarter.
Powell has said that he sees rapid wage gains, particularly in the labor-intensive service sector, as the biggest impediment to bringing inflation down to the Fed’s 2% target. When restaurants, hotels, veterinary clinics and other services companies raise pay, they often pass along those higher costs by charging their customers higher prices.
On an annual basis, wages and benefits grew 5.1% in the fourth quarter compared with a year earlier. That matched last year’s April-June figure as the strongest such figure in the roughly two decades that the data has been tracked. With the unemployment rate matching a 53-year low, businesses rapidly raised pay to try to attract and keep workers.Strong wage gains, though beneficial for workers, tend to fuel high inflation.
“The Fed is still likely to keep raising interest rates at the next couple of meetings, but we expect a further slowdown in wage growth over the coming months to convince officials to pause the tightening cycle after the March meeting,” said Andrew Hunter, an economist at Capital Economics.
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