US wage growth slowed in the final quarter of 2022

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, according to a report from the Associated Press.

Wages and benefits, such as health insurance, grew 1% in the October–December quarter compared with the previous three months. While still a solid gain, it was slower than the 1.2% increase in the July–September quarter.

Fed Chair Jerome Powell and economists consider the data released Tuesday, known as the employment cost index, to be the most comprehensive gauge of labor costs. Powell last year cited a sharp increase in the index as a key reason why the Fed accelerated its interest rate hikes.

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.