The numbers: The most comprehensive gauge of the rise in labor costs decelerated in the second quarter.

The employment cost index rose 0.7% in the second quarter, after rising 0.9% in the January-March quarter, the Labor Department said Friday. Economists polled by the Wall Street Journal had forecast a 0.9% increase.

The increase in compensation gains over the past year rose to 2.9% from 2.6% in the first quarter.

What happened: Wages and salaries rose 0.9% after advancing 1% in the first quarter. They were up 3.2% year-on-year. Wages make up about 70% of employment costs.

Benefits increased 0.4%. They account for the rest of worker compensation.

Big picture: The ECI is the broadest measure of labor costs. The data contradicts anecdotal evidence that workers have been gaining the upper hand with employers 

Wage data is crucial for the economic outlook as economists are debating whether the recent spike of inflation will be long-lasting or temporary. Labor costs are key because “you can’t have an inflation spiral without a wage spiral,” said Megan Greene, senior fellow at the Harvard Kennedy School.

On Wednesday, Fed Chairman Jerome Powell said he didn’t see signs of wage inflation that can lead to price inflation.

“That was something that was a feature of the high inflation era…but it’s not a feature now,” Powell told reporters.

Market reaction: Stocks
DJIA,
+0.44%

SPX,
+0.42%

were set to open lower on Friday after disappointing results from Amazon.com.

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