Key indicator shows signs of cooling wage growth

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Key indicator shows signs of cooling wage growth

A waiter walks among tables at a New York City restaurant. Photo: Spencer Platt/Getty Images A closely-watched indicator that tracks what employers pay workers in wages and benefits, rose 1.2% last quarter, the Labor Department on Friday — a slightly cooler pace than compensation growth in the prior quarter. Why it matters: The Employment Cost Index shows that wage growth is still hot. The data suggests that the Federal Reserve's fear of a wage-price spiral is — so far — not playing out as across the economy.The Fed's favorite inflation gauge, also out on Friday, that prices (excluding volatile food and energy costs) rose 0.5% in September, matching August's rapid pace.Compared to a year ago, the core personal consumption expenditures index rose 5.1% — above than the 4.9% registered the prior month. Catch up quick: Wages have risen rapidly in the past year, as a forces employers to bid up wages to attract workers. Still, in most industries, wages have not risen as quickly as inflation has. The Fed, which has to contain inflation, has warned about the potential of a wage-price spiral. That scenario plays out like this: Higher prices push workers to demand higher wages. That increases costs for their employers, which may push them to up prices for their products. The cycle continues — and inflation becomes deeply embedded in the economy.Last December, Fed chair Jerome Powell cited a hot reading of the Employment Cost Index as the main reason why he became more concerned about inflation. State of play: Data released on Friday suggested few signs of this dreaded outcome, at least so far.Compared to a year ago, the Employment Cost Index showed compensation among all civilian workers rose 5% in the third quarter, slightly slower than the 5.1% in June. For private-sector workers, compensation costs rose 1.1% last quarter, compared to the 1.5% in the second quarter.State and local government workers saw compensation costs rise last quarter to 1.9%, up from 0.8% in the prior period.

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