Today’s inflation report release delivered bad—but not surprising—news for households. The consumer prices picked up for the second month in a row reversing inflation’s downward trend.

Rising global energy prices are the big driver of last month’s price increases which makes driving and transporting goods more expensive. However, proposed regulatory changes from the Biden administration could also add new labor costs that will in turn drive consumer prices higher. 

What’s Happening

According to the Bureau of Labor Statistics, prices on all goods rose 0.6% from July to August—a 14-month hig—and 3.7% year-over-year. In the previous month, inflation rose 0.2% from July and 3.2% year-over-year, which marked a turnaround from cooling inflation that had been decelerating since June 2022 when headline inflation topped 9.1%. 

While the biggest driver of July’s inflation pickup was increased rent prices and housing costs, energy costs drove August inflation higher. The national average for a gallon of gas is $3.85, according to AAA,  up from $3.60 the month prior. The energy index rose 5.6% in August but fell 3.6% over the past 12 months and gasoline decreased 3.3% over the last 12 months. We expect that if energy prices keep rising this month, that will be reflected in next month’s numbers.

Global energy prices are rising due to Saudia Arabia, Russia, and other countries cutting oil production in an effort to raise prices. Tinkering with oil prices will undoubtedly put upward pressure on consumer prices.

Stripping out energy and food prices, which face price volatility, prices on other goods were more stable. So-called core CPI rose 4.3% year over year, which is slower than July’s 4.7% reading. Shelter prices were the biggest driver of core inflation rising 7.3% over the last year.

One additional inflation measure is the median CPI, which economists consider a better reading of price increases on what consumers pay for everyday items because it excludes outliers. The Median CPI rose 0.3% from July to August and 5.7% year over year in August. This 

Taken together, we have a dismal picture of inflation. The prices of goods that Americans are buying every day are two to three times higher than they were in 2021. So despite the headline CPI appearing to be lower than this time one year ago, Americans don’t feel relief.

Real wages, or inflation-adjusted wages, which have been negative since 2021 had finally turned around at the end of 2022, but are on the decline again. Negative real wages indicate that your paycheck is not keeping up with inflation.

As my colleague, Carrie Sheffield, opined recently, “nearly two and a half years into the Biden administration, households are suffering under a $5,600 effective pay cut due to inflation.”

Policy implications

President Biden’s woeful marks on measures like handling inflation and the economy reflect that Americans don’t trust him to fix the problems he created. 

According to Wall Street Journal polling last week, just 42% approved of how he is handling his job, well below the 57% who disapprove. Even worse, 63% disapprove of how the president has handled inflation and rising costs, while just 34% approve. Not only do over half of voters say the economy has gotten worse over the past two years, but nearly three in four say inflation is headed in the wrong direction. 

In a similar Reuters/Ipsos poll last month, 60% of Americans – including one in three Democratic Party voters – expressed disapproval of Biden’s handling of inflation.

How can we expect the person whose policies helped touch off 40-year high inflation to be trusted to fix it? As economists admit inflation took off after the economy was flooded with stimulus spending from President Biden’s and congressional Democrats’ $1.9 trillion American Rescue Plan. Other events and occurrences drove prices higher on specific items such as eggs and meat or energy. However, those events took place months after inflation was already rising.

Bidenonomics–President Biden’s economic agenda of excessive federal spending and onerous regulations–has not reduced inflation as he claimed it would. 

Instead, the Biden administration is pursuing regulatory policies that increase costs on businesses, which typically get passed on to workers through less pay and fewer opportunities and on to consumers through higher prices.

While it seems logical that higher labor costs would fuel inflation, data suggests that the impact may be minor. A Federal Reserve Bank of San Francisco paper from earlier this year concluded that although “higher labor costs are passed along to customers in the form of higher nonhousing services prices, however, the effect on overall inflation is very small. Labor-cost growth has no meaningful effect on goods or housing services inflation.”

This analysis may be put to the test in the coming weeks and months as a slew of labor regulations from the Department of Labor and other agencies are implemented. The Biden administration recently proposed a rule to expand overtime pay to millions more Americans. Meanwhile, we await proposed rules for joint employers (franchises) and independent contractors to be finalized. These policies could add new costs to doing business which will strain consumers and businesses alike.