(Bloomberg) -- US employment costs rose in the second quarter by more than forecast, heightening concerns that inflation will remain persistently high and prompt even more aggressive action from the Federal Reserve.

The employment cost index, a broad gauge of wages and benefits, increased 1.3% in the April-June period, according to Labor Department figures released Friday. The median estimate in a Bloomberg survey of economists called for an 1.2% advance.

Labor costs have been rising as employers, with a near-record number of open positions, try to attract and retain workers with higher pay and other perks. While that’s a plus for employees -- even though their pay gains aren’t keeping up with price increases -- it’s concerning for the Fed, which may need to maintain its aggressive stance to tamp down inflation and escalate risks of a recession.

A separate report on Friday showed the Fed’s preferred consumer-price gauge rose on a monthly basis in June by more than forecast. After the data, stock futures pared gains and two-year Treasury yields rose.

Fed Chair Jerome Powell has often referenced the ECI as a key measure of labor market tightness. In a press conference Wednesday following the central bank’s decision to raise interest rates by another 75 basis points, he said the index is “a very important one because it adjusts for composition” of employment.

Unlike the earnings measures in the monthly jobs report -- which is forecast to show next week that average hourly earnings moderated in July -- the ECI is not distorted by employment shifts among occupations or industries. Compared with a year earlier, the labor costs measure rose 5.1%, a fresh record, in data back to the early 2000s. 

While the monthly employment report’s hourly earnings figures are showing smaller annual increases, the Atlanta Fed’s wage growth tracker climbed 6.7% in June from a year earlier -- the most in data back to 1997.

Powell also said that the ECI hasn’t reflected the same slowdown in wage growth yet. Employment costs rose a record 1.4% in the January-March period, and this marks the fourth straight quarter that the index has risen at least 1%, the longest such stretch in data back to the early 2000s.

 

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