The U.S. Employment Cost Index came in up 0.9% in the fourth quarter, up 4.1% from a year ago.

BMO Nesbitt Burns says there were no big surprises in the data, the headline rise is more or less in line with expectations.

“There is no pricing power in today’s economy. So, the fact that the cost of hiring workers is rising much faster than inflation is having two major effects: It is squeezing the corporate bottom line; and, it is causing more widespread layoffs,” says BMO.

“A lot of the pressure is the result of external costs, such as medical care, and not the result of wage bargaining between workers and companies.”

BMO says it continues to view the first-half of this year as, “likely to be dominated by corporate efforts to restore profits growth in a sluggish, low-inflation environment. This suggests that the ECI will show slower pay gains ahead.”

“There is no worry about cost-push price pressures,” says BMO. “The weak link will be company unwillingness to hold on to workers at higher pay levels. So, the pay gains are more likely to result in additional unemployment and less likely to result in higher prices.”