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U.S. labor costs increase as expected in fourth quarter

WASHINGTON, Jan 31 (Reuters - U.S. labor costs increased in the fourth quarter as a tightening labor market lifted wages across the board, but the pace remained not strong enough to significantly boost inflation.

The Employment Cost Index, the broadest measure of labor costs, rose 0.7% last quarter after increasing by the same margin in the third quarter. That lowered the year-on-year rate of gain in the ECI to 2.7%. Labor costs rose 2.8% on a year-on-year basis in the third quarter.

Economists polled by Reuters had forecast the ECI would rise 0.7% in the October-December period.

The ECI is widely viewed by policymakers and economists as one of the better measures of labor market slack. It is also considered a better predictor of core inflation.

Labor costs peaked in the final quarter of 2018 as a tightening labor market pushed up wage growth. The pace of increases has since slowed in tandem with wages.

In the fourth quarter, wages and salaries, which account for 70% of employment costs, rose 0.7% after advancing 0.9% in the prior period. Wages and salaries were up 2.9% in the 12 months through December after a similar increase in the 12 months through September.

Private-sector wages and salaries rose 0.7% in the fourth quarter, slowing from a 0.9% increase in the third quarter. They were up 3.0% in the 12 months through December after rising by the same margin in the year through September.

State and local government wages and salaries increased 0.5% after surging 1.0% in the third quarter.

Benefits for all workers gained 0.5% in the October-December period. That followed a 0.6% rise in the prior quarter. Benefits were up 2.2% in the 12 months through December after increasing 2.3% in the year through September. (Reporting by Lucia Mutikani Editing by Paul Simao)