CSBJ Daily

The Associated Press

WASHINGTON– Worker productivity rose by a better-than-expected amount in the first three months of the year while labor cost pressures eased.

The Labor Department reported today that productivity, the amount of output per hour of work, increased at an annual rate of 2.2 percent in the first quarter. That was slightly higher than the 1.5 percent increase which had been expected.

In a sign that inflation could be easing, labor cost pressures slowed a bit. Unit labor costs rose at an annual rate of 2.2 percent, down from a 2.8 percent rise in the final three months of last year.

While rising wages and benefits are good for employees, those increases can lead to higher inflation if businesses are forced to boost the cost of their products to cover the higher payroll costs.

However, if productivity is increasing it allows businesses to finance higher wages out of the increased output.

The Federal Reserve, which is always on guard about the threat of inflation, closely monitors developments in productivity since wage pressures are often the key way that inflation gets out of control.

The Fed last week boosted a key interest rate for the seventh time since September, but the increase was a smaller quarter-point move and the Fed signaled that it may pause its rate cutting campaign in part because of concerns about inflation.

Analysts read the bigger-than-expected rise in productivity and the smaller increase in unit labor costs as a good sign that inflation pressures, at least on the labor front, are remaining under control and the country is not facing the danger of any type of wage-price spiral.