US labor costs increased solidly in the fourth quarter, the government reported Wednesday, as growth in wages and benefits is expected to accelerate amid a tightening labor market that is forcing employers to raise pay to retain and attract workers. The US Labor Department said its employment cost index (ECI), the broadest measure of labor costs, increased 0.6 percent in the October-December period after a 0.7 percent rise in the third quarter. For all of 2017, the ECI rose 2.6 percent, the biggest increase since early 2015. Wages and salaries, which account for about 70 percent of employment costs, rose 0.5 percent in the fourth quarter after a 0.7 percent advance in the previous period. Wages and salaries increased 2.5 percent in 2017. Private-sector wages and salaries rose 0.6 percent in the final three months of last year. They were up 2.8 percent in 2017, the biggest increase since early 2015. Benefits for all workers increased 0.5 percent in the fourth quarter after gaining 0.8 percent in the third quarter. Benefits increased 2.5 percent in 2017. The ECI also is considered a good predictor of core inflation. Economists say labor costs must rise by at least 3 percent to push inflation closer to the Federal Reserve's (Fed's) 2-percent inflation target. Wage growth is expected to accelerate due to the strong labor market, which is forecast to hit full employment this year. The unemployment rate is at a 17-year low of 4.1 percent, and economists expect it to drop to 3.5 percent by the end of 2018.
