US productivity slowed as employers’ labour costs rose more than expected last quarter in a sign of persistent inflation pressures.

Labour costs climbed 1.8 per cent while productivity growth was cut to a rate of 1 per cent from a previous estimate of 1.7 per cent, according to a government report.

The figures underline the Federal Reserve’s concern that businesses will pass along greater labour costs to consumers through higher prices.

Ben Bernanke, the Fed chairman, said this week that there had been a gradual ebbing of core inflation recently.

But he added that the current level was ”somewhat elevated” and emphasised continued risks to price levels.

”The continuing high rate of resource utilisation suggests that the level of final demand may still be high relative to the underlying productive capacity of the economy,” he said.

The slowdown in productivity reflects a sluggish economic performance last quarter, when overall growth fell to 0.6 per cent, its lowest level in more than four years.

Steven Wood, of Insight Economics, said productivity had fallen to its slowest year-on-year growth rate since 1995.

“Just three years ago, non-farm business productivity was growing at more than 4 percent year on year,” he added.

US stocks were opened lower on Wednesday as bonds eased and investors priced in a greater likelihood that the Fed would move to cut rates this year to keep inflation in check.

As investors have pushed long-term interest rates higher there are signs this has dampened mortgage activity.

A separate report showed a drop in mortgage refinancings that offset a rise in borrowing for new purchases, dragging the Mortgage Bankers Association’s index down 1.7 per cent for last week.