Wage-inflation spiral alarm not yet sounded: U.S. Q2 labor costs exceed expectations, while real purchasing power is eroded by inflation.

Data released by the U.S. Department of Labor on Friday showed that labor costs in the U.S. rose slightly more than expected in the second quarter of this year, with a marked acceleration in private sector wage growth. However, after adjusting for inflation, real wage costs actually decreased, indicating that the job market is not exerting a significant upward pressure on inflation. The Employment Cost Index (ECI), widely regarded as the broadest measure of labor costs, rose 0.9% quarter-on-quarter in the second quarter, consistent with the increase in the first quarter, but above economists previous expectations of 0.8%. For the 12 months ending in June, the index increased by 3.4% year-on-year. Since the ECI excludes the effects of changes in employment composition and job quality, policymakers have long regarded it as a relatively reliable indicator for measuring labor market slack and predicting core inflation trends. Breaking it down, wages and salaries, which make up the bulk of labor costs, increased by 0.9% quarter-on-quarter and 3.2% year-on-year in the second quarter. Specifically, the quarter-on-quarter increase in private sector wages accelerated from 0.7% in the first quarter to 0.9%, becoming the main driver of moderate labor cost rises. However, concurrent price increases eroded nominal gainsdata from the Department of Labor indicate that inflation-adjusted wage costs have fallen over the past year. Additionally, health benefit costs provided by private sector employers soared by 6% year-on-year, nearly double the wage growth rate, further increasing the pressure on corporate labor expenditures. Between March and May of this year, the job market saw a temporary acceleration in hiring, but this momentum clearly waned in June. Economists describe the current labor market as being in a stalemate with "low hiring and low firing." The Federal Reserve maintained the benchmark overnight rate in the range of 3.50% to 3.75% on Wednesday, but there were notable internal disagreementsthree committee members preferred a 25 basis point rate hike. Fed Chair Kevin Warsh stated after the meeting, "Job growth has kept pace with the growth of the labor force, and the unemployment rate has changed little." Data released the previous day indicated a slight easing of inflation in June, but it remains well above the Feds 2% target. Overall, the ECI report further confirms that the current labor market is not sufficient to trigger the risk of a wage-inflation spiral. Looking ahead to next week, the U.S. Bureau of Labor Statistics will release the July non-farm payroll report, providing the latest insights into national hiring and wage trends. Economists expect that non-farm payrolls will increase by nearly 90,000 in July, reflecting an uptick from June, while the unemployment rate is anticipated to remain stable.