Paychecks grew more slowly this spring, a sign inflation may keep cooling

Pay and benefits for America’s workers grew more slowly in the April-June quarter than in the first three months of the year, a trend that could keep price pressures in check and encourage the inflation-fighters at the Federal Reserve

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Pay and benefits for America’s workers grew more slowly in the April-June quarter than in the first three months of the year, a trend that could keep price pressures in check and encourage the inflation-fighters at the Federal Reserve.

Compensation as measured by the government’s Employment Cost Index rose 0.9% in the second quarter, down from a 1.2% increase in the previous quarter, the Labor Department said Wednesday. Compared with the same quarter a year earlier, compensation growth was 4.1%, a slight drop from 4.2% in the first quarter.

Higher wages and benefits are good for employees, but slower pay growth will likely reassure Fed officials that inflation is steadily falling back to their 2% target. Rapid wage growth can lead many businesses to raise their prices to offset the higher labor costs.

Inflation is also cooling, so wage and benefit growth, adjusted for inflation, is actually accelerating. It rose 1.1% compared with a year ago in the second quarter, up from 0.8% in the previous three months.

The Fed is expected to keep its key short-term rate unchanged after its latest policy meeting concludes later Wednesday. Yet Fed officials are also likely to signal that the first rate cut in four years is on the horizon, likely at its next meeting in September.