U.S. employment costs rose at a firm pace in the third quarter, underscoring persistent inflationary pressures that will keep the Federal Reserve on a course of steep interest-rate hikes.

The employment cost index, a broad gauge of wages and benefits, increased 1.2% in the July-September period, according to Labor Department figures released October 28. The gain matched the median estimate in a Bloomberg survey of economists.

Labor costs have advanced rapidly this year as employers boost wages to attract and retain talent in their quest to fill millions of job openings. While that’s been a boon to U.S. workers — even though their pay has lagged inflation for the past year and a half — it’s been a persistent challenge for Fed policymakers in their battle to stamp out decades-high inflation.

The Fed wants to see some softening in labor-market conditions to ease upward pressure on wages and prices that have proved stubborn. Job creation, while slowing, is still robust, the unemployment rate is historically low and demand for workers far exceeds supply.

A separate report on October 28 showed the Fed’s preferred inflation gauge continued to stay well above the central bank’s goal. Taken together, the data solidify bets that policy makers will hike rates by another 75 basis points next week.

Unlike the wage measures in the monthly jobs report — which is forecast to show November 4 that average hourly earnings moderated in October from a year ago — the ECI is not distorted by employment shifts among occupations or industries. Compared with a year earlier, the labor costs measure rose 5%.

Compensation gains last quarter cooled from the previous three months due to smaller advances in both wages and benefits among private industry workers. Pay for government employees accelerated.

Health care and education were among industries showing faster compensation growth, while pay growth at goods producers cooled.

While wages are firmly climbing, they’re not keeping up with inflation, which is tempering consumer spending.

Recent commentary from companies like Coca-Cola Co. and Procter & Gamble Co. show shoppers are increasingly price sensitive, and in some cases, buying less, a trend economists dub demand destruction.

There are some signs the labor market is already softening. Companies like Seagate Technology Holdings Plc and Meta Platforms Inc. are reducing headcount, citing economic uncertainty. Job openings overall have retreated from a record, but remain extremely elevated.