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Compensation growth surged beyond expectations in the first quarter of the year, indicating ongoing inflationary pressures.

According to the U.S. Bureau of Labor Statistics (BLS), workers saw a 1.2 percent increase in pay during the first three months of 2024 compared to the previous quarter. This rise exceeded the 0.9 percent climb seen in the fourth quarter of 2023. Both wages/salaries and benefits costs rose by 1.1 percent from December 2023, defying the forecasted 1 percent increase by many economists.

Year over year, compensation for civilian workers in the U.S. rose by 4.2 percent, up from the 4.1 percent seen in the final quarter of 2023. State and local government workers experienced an even higher increase of 4.8 percent.

Specifically, wages and salaries grew by 4.4 percent for the 12-month period ending in March 2024, a decrease from the 5 percent rise in March 2023. Benefits costs increased by 3.7 percent over the year, compared to a 4.5 percent rise in March 2023.

This uptick indicates that persistent inflation continues to impact labor costs, marking a reversal from previous months of slower growth. The Federal Reserve closely monitors such trends, especially in wage growth, as it shapes monetary policy decisions. Given the growth in wages during the first quarter, it’s unlikely that the Fed will cut interest rates at its next meeting.

For employers, the Employment Cost Index (ECI) provides crucial insights into changing total compensation costs over time. This information helps in making informed decisions about pay adjustments and staying competitive in the labor market.

Despite the recent stabilization of inflation, employers have been focusing on competitive pay raises to retain talent. However, recent data suggests a slight slowdown in pay increases compared to earlier projections, indicating a nuanced approach by employers amidst evolving economic conditions.