Sharp Downgrades to US Unit Labour Costs Bode Well for Inflation Outlook

• U.S. unit labour costs grew far less than initially thought in the third quarter, pointing to a still favourable inflation outlook, even though price increases have not moderated much in recent months.
• The report from the Labour Department on Tuesday also showed labour costs declined in the second quarter, instead of rising as had been estimated last month. Moderate labour costs growth is likely to be welcomed by Federal Reserve officials when they hold their last meeting of the year next week. The U.S. central bank is expected to cut interest rates by 25 basis points, the third reduction in borrowing costs since it started its monetary policy easing cycle in September.
• Unit labour costs - the price of labour per single unit of output - increased at a 0.8% annualised rate last quarter, the Labour Department's Bureau of Labour Statistics said. Economists polled by Reuters had expected labour costs growth would be revised down to a 1.5% rate from the previously reported 1.9% pace in the July-September quarter. That followed a downwardly revised 1.1% pace of decline in the second quarter. Labour costs were previously reported to have advanced at a 2.4% rate in the April-June quarter.
• It increased at a 2.2% pace in the third quarter from a year ago, revised down from the previously reported 3.4% rate. The revisions reflected updated compensation data from the Bureau of Economic Analysis.
• A resilient economy, lack of progress lowering inflation to the Fed's 2.0% target and concerns over President-elect Donald Trump's proposed policies, including higher tariffs and mass deportations, have made the rate outlook next year unclear. The Fed's policy rate is now in the 4.50%-4.75% range.

(Source: Reuters)