Average hourly earnings were $25.35/hour in February, a gain of 2.22% from a year earlier, a slight disappointment, as it was a bit slower growth than what was recorded in January, a gain of 2.54% year over year. Average Hourly Earnings were 3c below the January result. January had advanced 12c over December. Hours worked declined modestly, down 0.58% M/M and Y/Y. Clearly there is some wage inflation although it’s increasing at a moderate pace.

However it seems as though labor market strength is having a notable impact on other inflation indicators.  The Core CPI, which excludes food and energy, is climbing to levels not seen since prior to Lehman’s collapse.  Perhaps even more significantly, the PCE (Personal Consumption Expenditures) a gauge closely watched by the Fed, has turned sharply higher.

The odds of a Fed rate increase in March may negligible, yet as the year progresses and the aforementioned trends hold true, it’s hard to imagine the Fed not raising at least once.


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