Wage growth decelerates in recent months, suggesting inflation slowdown

Pay and benefits for American workers saw slower growth in the April-June quarter compared to the first three months of the year, according to the Labor Department. The Employment Cost Index, which measures compensation, increased by 0.9% in the second quarter, down from a 1.2% growth in the previous quarter and a slight drop from the 4.2% growth a year earlier.

While higher wages and benefits are positive for employees, the slower growth in pay may reassure Federal Reserve officials about keeping inflation in check. Fast wage growth can prompt businesses to raise prices to offset increased labor costs. The Fed aims for a 2% inflation target.

Inflation is currently decreasing, resulting in an acceleration of wage and benefit growth when adjusted for inflation. In the second quarter, this adjusted growth was 1.1% higher compared to a year ago, up from 0.8% in the previous quarter. The Fed is anticipated to maintain its current short-term rate following its policy meeting, but they might hint at a rate cut in September, the first in four years.