WASHINGTON, (Reuters) – U.S. labor prices rose by most since 2001 when companies increased wages and benefits in the face of severe shortages. This suggests that inflation may remain elevated for some time.

The Labor Department announced Friday that the Employment Cost Index, which measures labor costs in broadest terms, increased 1.3% after increasing 0.7% over the April-June period. This was the largest increase since 2001, reflecting an overall rise across all industries.

The increase in labor costs was 3.7%, the highest annual rise since 2004, the third quarter 2004. They had risen 2.9% during the second quarter.

According to Veronica Clark (an economist at ), “While initial wage increases were concentrated in low-wage industries, but more recently, wage pressures are broadening across industries.” Citigroup New York (NYSE:). Rising wages would indicate that there is a higher chance of rising labor costs and other input costs being passed onto consumers.

Economists and policymakers alike consider the ECI to be a reliable indicator of labor market slack. It also predicts core inflation because it takes into account changes in job quality and composition. Reuters polled economists to forecast an increase of 0.9% for the ECI in the third-quarter.

After increasing 0.9% during the second quarter, wages and salaries rose 1.5%. They increased 4.2% in the second quarter. After rising 0.4% during the April-June quarter, benefits gained 0.9%.

COVID-19 has caused a disruption in labor market dynamics and created an acute shortage of workers. At the end August, there were 10.4 Million job opportunities.

Federal Reserve preferred inflation gauge, which is the price index for personal consumption expenditures, excluding energy and food, rose by 4.5% during the third quarter. It had increased 6.1% in April-June, according to government reports. The flexible target of 2% inflation is set by the U.S. central banks.