New inflation data shows prices and wages still surging

Employers' compensation costs were rising quickly at the start of the year, and the price of consumer goods continued its surge in March, according to new data that showed inflation pressures continued in the U.S. through the winter.

Driving the news: The Employment Cost Index, a measure of how much employers pay for their workers' wages and benefits, was up 1.4% in the first quarter and 4.5% over the last year. The personal consumption expenditures price index was up 0.9% in March, or 0.3% excluding volatile food and energy.

The details: Over the last year, core PCE inflation was 5.2% in March, edging down from 5.3% in February. That is the key inflation measure that the Federal Reserve watches, aiming to keep it around 2%.

• Core PCE did not accelerate in March, with an 0.3% rise that matched February. That's the good news — when energy and food prices are excluded, inflation didn't accelerate last month.
• The surge in energy prices tied to the war in Ukraine in March pushed overall inflation up sharply, however, to 6.6% for the year ended in March, up from 6.3% in February. It thus notched a new four-decade high.

Yes, but: The ECI shows that employers are paying substantially more to their workers, suggesting that wage pressures are building that will eventually cause companies to raise the prices they charge consumers.

• The index incorporates both wages (up 1.2% in the first quarter alone) and benefit costs (up 1.8%), thus capturing the full extent of what companies must pay to attract and retain workers

• The 4.5% year-over-year rise in the index is the highest it has been in data that dates to 2002 and was higher than the 4.3% analysts had expected.

Economists are closely watching whether higher costs for wages and benefits cause a surge in prices for labor-intensive services, even as supply chain problems for physical goods start to abate and those prices stabilize. The new ECI numbers suggest that is a meaningful risk.

The bottom line: Higher costs for wages and benefits along with the ripple effects of the March surge in energy prices are likely to keep inflationary pressures alive across the economy.