Postage Rates Could Rise 1.8% As USPS Wins Rate Ruling

Postal rates for the majority of mail are likely to rise about 1.8% early next year because the Postal Regulatory Commission has sided mostly with the U.S. Postal Service in a dispute over price caps.

Determining exactly what will happen to First-Class, Standard, and Periodicals rates as a result of the PRC’s complex ruling, issued late Friday, is a bit difficult to discern. But one likely scenario is that the Postal Service will announce average increases this week of 1.8% for these “market-dominant” classes, with implementation as early as February.

The Postal Service would have the latitude to raise the price of a First-Class stamp one cent, to 45 cents (a 2.3% increase), by keeping other First-Class increases lower than the cap.

The PRC ruled that the inflation-based price cap for the next round of price increases would be based on comparing the average Consumer Price Index for the most recent 12 months to that of the previous 12 months. The Affordable Mail Alliance objected to that approach in October (See Mailers Alliance Fights 'Nonsensical' Price-Cap Ruling), saying that it would unfairly ignore a deflationary period in 2009.

The method approved by the PRC would currently yield a price cap of 1.799%, but it is likely to edge down a bit this Wednesday (Dec. 15), when the CPI for last month will be released. If the CPI numbers continue their recent trend, the cap would probably be about 1.65% if USPS waits for the December numbers to raise rates.

The mailers alliance’s proposed method would compare the most recent 12 monthly CPI readings to those of calendar year 2008, resulting in a current price cap of 0.96%.

The ruling was not a total loss for mailers, however. The PRC determined that the deflationary period of early 2009 factors into calculation of USPS’s “unused rate authority”. That’s usually where the Postal Service can “bank”, for future increases, the difference between a rate cap and an actual rate increase. But the ruling cleaned out the bank, resulting in unused rate authority of  -0.6% to -0.7% for each market-dominant class.

The rate bank’s negative balances introduce a “use-it-or-lose-it” element to the next rate increase: If any class’s average rate increase is less than the cap, the Postal Service will not be able to bank the difference for future rate increases.

The PRC’s ruling has no apparent impact on the Postal Service’s request for “exigent” rate increases, which is still in front of an appeals court.

Related articles:

• How Quickly Can the Postal Service Implement a Rate Increase?
• USPS's Action Delays Announcement of New Postal Rates