updated 7/29/2004 9:34:39 AM ET 2004-07-29T13:34:39

Wages and benefits for U.S. workers rose a moderate 0.9 percent in the April-June quarter this year, down slightly from the previous quarter’s increase, as price pressures for benefits like health insurance eased significantly.

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The Labor Department reported Thursday that the 0.9 percent rise in wages and benefits in the second quarter followed a 1.1 percent increase in the January-March quarter. It was the smallest quarterly increase since a 0.8 percent rise in the final quarter of last year.

The slowdown in wage and benefit costs reflected a significant decrease in the pace of benefit increases, which climbed by 1.8 percent in the second quarter, compared to a much faster 2.4 percent increase in the first quarter.

Employers who provide health care benefits have been struggling to keep up with the soaring cost of health insurance in recent years with many of them passing on a large portion of those costs to workers in the form of higher monthly premiums.

Wage pressures, which have been constrained over the past three years by a recession and a weak recovery in jobs, rose by 0.6 percent in the April-June quarter, matching the gain in first quarter. It marked the sixth quarter out of the past eight that wages have risen at a quarterly pace of 0.6 percent or less.

For the second quarter, the government said that the rise in benefit costs accounted for a little over half of the total increase in compensation for the quarter. That marked a decline from the first quarter, when benefit increases had accounted for two-thirds of the rise in compensation for that period.

Benefit costs include not only health insurance but also pension benefits for employees who have pension coverage in their jobs.

Federal Reserve Chairman Alan Greenspan told Congress last week that the Fed is closely watching for any signs that wage pressures are beginning to accelerate. So far, inflation outside of energy has been well-behaved this year.

The central bank, aiming to head off inflationary pressures before they become embedded in the economy, boosted its target for the federal funds rate, the interest that banks charge each other, for the first time in four years on June 30.

The quarter-point increase pushed the funds rate from a 46-year low of 1 percent to 1.25 percent. Economists are looking for the Fed to increase the funds rate by another quarter point at its next meeting on Aug. 10.

They believe the central bank will continue gradually increasing the funds rate for the rest of this year and into 2005 in a delicate balancing act aimed at slowing the economy enough to keep inflation at bay while not overdoing the credit tightening and running the risk of pushing the country back into recession.

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