THE PAY RAISING FEARS

Inflation to remain

US employee pay jumped more than expected in the first three months of this year — yet another sign that inflation could stay higher for longer.

The employment cost index (ECI), which measures worker compensation and benefits, gained 1.2% in the first quarter — surpassing the Dow Jones consensus estimate for a 1% advance.

Stocks plunged on Tuesday, with the Dow dropping 570 points, or 1.5%. The blue-chip index ended April with a 5% decline, its biggest percentage decline since September 2022.

All three indexes snapped five-month winning streaks.

Tuesday’s reading from the Labor Department — which traditionally signals underlying inflation pressures — was also above the 0.9% rise experienced in the fourth quarter of 2023.

March’s surprisingly resilient jobs report — which blew past economist expectations and said employers increased their payrolls by a staggering 303,000 last month — also doesn’t bode well for inflation’s slowdown.

Historically, a strong job market keeps wages and consumer spending levels elevated, thus fanning inflation and interest rates.

The latest economic data muddies the path forward for Federal Reserve Chair

Jerome Powell, who said on April 16 that “given the strength of the labor market and progress on inflation so far, it’s appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us.”

No rate drop due

The rate-setting Federal Open Market Committee began its two-day meeting yesterday.

When it concludes today, Powell is expected to keep the federal-funds rate steady at its highest level in more than two decades.

News of the stiff advance across worker pay comes just days after the World Bank warned that the days of energy and other commodities serving as a deflationary force could be nearing an end, citing geopolitical tensions that have put pressure on demands for oil, industrial metals and other supplies.

The latest warning signs throw further doubt on the Fed’s ability to tamp inflation down to its 2% goal by the end of the year.

To bring inflation down from its 9.1% peak in the summer of 2022, central bankers issued a string of 11 rate hikes in an effort to cool down the economy, lifting borrowing rates to their current 23-year high, between 5.25% and 5.5%.

However, inflation has yet to come in below 3%.