U.S. labor costs increased more than expected in the first quarter amid a rise in wages and benefits, confirming the surge in inflation early in the year.

The Employment Cost Index (ECI), the broadest measure of labor costs, increased 1.2% last quarter after rising by an unrevised 0.9% in the fourth quarter, the Labor Department's Bureau of Labor Statistics said on Tuesday.

Economists polled by Reuters had forecast the ECI would advance 1.0%. Labor costs increased 4.2% on a year-on-year basis after rising by the same margin in the fourth quarter.

The ECI is viewed by policymakers as one of the better measures of labor market slack and a predictor of core inflation because it adjusts for composition and job-quality changes.

The report followed data last week that showed price pressures heating up in the first quarter. Federal Reserve officials were due to start a two-day policy meeting on Tuesday. The U.S. central bank is expected to leave its benchmark overnight interest rate unchanged in the current 5.25%-5.50% range, where it has been since July.

The Fed has raised the policy rate by 525 basis points since March 2022. Financial markets have pushed back expectations of a rate cut this year to September from June.

A handful of economists continue to expect that borrowing costs may be lowered in July in the belief that the labor market will slow noticeably in the coming months. Others believe the window for the Fed to start its easing cycle is closing.