Labor costs rise modestly, but error could distort data

Labor costs rose less than expected in the first quarter and pointed to benign wage inflation, a potential sign the Federal Reserve has space to continue its monetary stimulus program.

The Employment Cost Index increased 0.3 percent in the first quarter, the Labor Department said on Tuesday. However, the data may have been distorted by an error found in benefits data for sales and office workers, the department said.

Workers' benefits rose 0.1 percent during the quarter, the slowest pace since 1999. A Labor Department analyst said the data error probably did not have a major impact on that series. The department said benefits data for sales and office jobs had been left out of the calculations for the increase in overall benefits.

Analysts polled by Reuters had expected a 0.5 percent increase in overall labor costs. In the 12 months through March, compensation costs advanced 1.8 percent.

The Fed has kept overnight interest rates near zero since late 2008 and it has tripled its balance sheet to about $3 trillion through purchases of securities, which are aimed at pushing longer-term borrowing costs lower.

Wages and salaries, which account for 70 percent of employment costs, increased 0.5 percent in the first quarter, up from a 0.3 percent gain in the fourth quarter.

They were up 1.6 percent in the 12 months through March.

(Reporting by Jason Lange; Editing by Neil Stempleman)