U.S. employment costs jumped by the most on record at the start of the year, heightening concerns about persistent inflation that set the stage for more forceful policy action by the Federal Reserve.

The employment cost index, a broad gauge of wages and benefits, advanced 1.4% in the first quarter, according to Labor Department figures released Friday. That followed a 1% advance seen in the final months of 2021.

The median projection in a Bloomberg survey of economists called for a 1.1% increase.

Compared with a year earlier, the labor costs measure jumped 4.5%, the most in data back to the early 2000s. Unlike the earnings measures in the monthly jobs report, the ECI is not distorted by employment shifts among occupations or industries.

Compensation gains last quarter were broad-based across industries, including strong advances in manufacturing and at service providers.

Wages and salaries for civilian workers climbed 4.7% from a year earlier, also the most on record. Benefits rose 4.1%. Excluding government, private wages increased 5% from a year earlier.

The stretch of healthy gains in employment costs underscores how rising wages are a key part of the inflationary picture, and if sustained, will keep pressure on the Fed to take a more aggressive approach to policy. In March, Fed Chair Jerome Powell said the current pace of pay increases is not consistent with the central bank's 2% inflation goal.

Even so, workers wages' aren't keeping pace with decades-high inflation, squeezing households and threatening to slow consumption.

Job openings are near record highs, leading businesses big and small to raise wages to attract and retain workers. And while elevated labor costs have weighed on some companies' margins, many businesses have passed along those costs to consumers through higher prices.

But wages are only part of the picture. A combination of factors are driving up input costs for businesses, including high prices for materials and ongoing supply chain challenges. S&P Global's gauge of input prices surged to a record high this month.

Looking ahead, a tight job market could keep wage growth on the boil. Labor shortages have eased somewhat, but the leisure and hospitality sector is still grappling with 1.7 million vacancies.

Companies in recent earnings calls have also noted the ongoing war for talent. John Greene, chief financial officer of Discover Financial Services, said Thursday that the company expects "some degree of salary wage pressure in 2022 and possibly into 2023 as we take steps to remain competitive."

But the economy is facing growing headwinds. Recession odds are creeping higher amid expectations the Fed will move aggressively to get a handle on red-hot inflation. And the latest figures on economic growth were weaker than expected. As a result, wage gains may moderate in the months ahead.

Reade Pickert reports for Bloomberg News.

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