As the Federal Reserve prepares to increase interest rates to curb growing inflation, US labour costs grew sharply in the fourth quarter of last year, capping the largest one-year gain in labour inflation in two decades. Last quarter, the Employment Cost Index (ECI), a quarterly assessment of salaries and benefits paid by businesses, increased by 1% after growing by 1.3 percent the previous quarter.

The ECI increased 4% a year ago, marking the largest one-year increase in data since 2001. According to the Department, civilian workers' wages and salaries climbed by 4.5 percent in the 12-month period ending in December 2021, much higher than the 2.6 percent growth in the 12-month period ending in December 2020. The rise in labour expenses coincides with the Fed's announcement on Wednesday that it is prepared to hike interest rates as soon as March to battle growing inflation as it leaves the ultra-loose monetary policy implemented at the onset of the Covid-19 outbreak in 2020.

For the next two years, the central bank has promised to keep the federal funds rate at zero, which is a record low. However, due to rising inflationary pressures, many Fed members have stated in recent weeks that they would be fine with a rate hike in March.

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