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Paychecks aren't going up very much but health-care costs sure are

If there are inflation winds in the air, it would be hard to tell by worker paychecks.

Employment compensation costs rose just 1.9 percent on an annualized basis in the first quarter, after a 0.6 percent gain for the three-month period, according to the latest Bureau of Labor Statistics' employment cost index reading Friday. That's a sharp decline from the year-ago period, which showed a 2.6 percent gain, though the quarterly rise was in line with Wall Street expectations.

The drop in growth came from both salary and benefits, which rose 2 percent and 1.7 percent, respectively, for the 12-month period. That was against gains of 2.6 percent and 2.7 percent for the year-ago period.

And while wages, salaries and benefits were stuck in neutral, the index showed that employer costs for health care were on the rise, gaining 3.3 percent in the period compared to a 2.5 percent increase for the previous 12-month cycle.

The numbers are significant because Federal Reserve officials are looking for signs of inflation, particularly in wages, as a cue for when it would be appropriate to raise interest rates again. The Fed hiked its rate target in December but has held off since amid weak economic growth and little signs of positive inflation.

Fed watchers believe Chair Janet Yellen observes the ECI closely as one of the metrics for the data-dependent central bank. The Federal Open Market Committee earlier this week declined again to continue on its rate-hiking path, citing the stumbling economy and low inflation level.

Some economists saw the language accompanying the decision as indicating the FOMC was open to a June rate rise, but the recent trends on inflation would seem to buck that notion.

Along with the ECI data, personal consumption expenditure growth, another favored Fed metric, remained weak. Core PCE, which excludes food and energy costs, rose just 1.6 percent annualized, while the headline number was up 0.8 percent year over year. Consumer spending was little changed for the month, while savings hit their highest level since December 2012.

Taken together, the numbers don't provide a lot of impetus for the Fed to move anytime soon. Traders in the fed funds futures market are reacting in kind.

Despite a plethora of Wall Street economists insisting that a June hike is on the table, traders estimated the probability at just 15 percent, a decline of 4 percentage points on Friday morning alone. No month until December has a better-than-even chance for a rise, with November falling to 47 percent Friday. The June futures contract indicates a funds rate of just 0.39 percent, barely above the current 0.37 percent, according to FactSet.