Weak US Third-Quarter Unit Labour Costs Point To Slowing Inflation

• In Q3, U.S. unit labour costs declined at an annualised rate of 1.2%, signalling a slowdown in services inflation. This revision from the previously reported 0.8% decline supports the Federal Reserve's efforts to combat inflation.
• Nonfarm productivity increased at a rate of 5.2% in the last quarter, the fastest pace since Q3 2020. This, coupled with a moderation in wage growth in November, brightens the inflation outlook and strengthens expectations that the Fed might shift from tightening to cutting rates in Q1 2024.
• The Federal Reserve, having raised interest rates by 525 basis points to the current range of 5.25%-5.50% since March 2022, is expected to leave interest rates unchanged. The data on labour costs and productivity growth supports the Fed's strategy to bring inflation back to its 2% target.
• The labour market is cooling, with reports showing a drop in job openings, a decline in wage pressures, and a potential slowdown in economic activity in Q4. This cooling and other economic indicators reduce the risk of inflationary pressures, making it easier for the Fed to consider rate cuts in 2024.

(Source: Reuters)