Inflation heating up: Fed Beige Book

While the U.S. economy has experienced a solid recovery since the Great Recession, stagnant wages and low inflation have baffled economists. But according to the Fed’s latest Beige Book, this may be turning around.

The Beige Book on Wednesday noted that employment growth has increased since the previous report in October, and the labor market continued to tighten with Americans finally starting to see their wages increase.

Many Fed districts said that employers were raising wages and increasing their use of signing bonuses and other nonwage benefits to retain or attract employees. Wage increases were most notable for professional, technical and production positions that remain difficult to fill.

Most districts reported employers were having difficulties finding qualified workers across various skill levels, and several districts reported that an inability to find workers with the required skills was a key factor restraining hiring plans.

Meanwhile, inflation may finally be kicking in. The report noted that price pressures have strengthened since the last report with most districts reporting modest to moderate growth in selling prices and moderate increases in non-labor input costs.

The Fed has been consistently perplexed with low inflation, a sentiment Yellen reiterated on Wednesday during her congressional testimony on the U.S. economic outlook.

The Beige Book, released eight times per year, is a summary of economic conditions from each U.S. Fed district. Each Fed bank gathers commentary on current economic conditions in its district through reports from bank and branch directors and interviews with business leaders and economists.

Economic activity continued to increase at a modest to moderate pace in October and mid-November, and most districts reported a slight improvement in their outlook.