Postal Service Betting On Higher Inflation Through 2024

The U.S. Postal Service (USPS) is betting inflation is going to soar through 2024. It also believes that it should be able to bank inflation adjustments faster than Social Security recipients and members of the Armed Forces.

In an opaque filing with the Postal Regulatory Commission (PRC) on September 15, USPS says it will now increase prices every six months on market dominant products (translation: mail products, which only it can legally provide). While USPS incurs time and expense in making rate filings with the PRC, this is far less of a concern in an environment of higher inflation.

In 2020, inflation was 1.2 percent. For the past 12 months, it is 5.3 percent. If we assume that inflation stays at its current rates, USPS can increase mail prices at least 2.65 percent every six months.

In a six-month period, USPS’s market dominant product revenue is approximately $20 billion. A 2.65 percent increase in a six-month period results in $530 million of additional revenue. And USPS gets it six months earlier than under the current approach.

While USPS could pass on a 0.6 percent rate increase (half of the 2020 inflation rate) a 2.65 percent six-month increase, half of the past 12 months, is hard to pass up.

Furthermore, under a new pricing regime adopted by the PRC on November 30, 2020, USPS can now seek rate increases above the rate of inflation.

There is a bit of bright news here. USPS, which just implemented a 6.8 percent mail increase on August 29, will not be seeking its next increase until July 2022. For several reasons, that is not surprising. For starters, USPS also implemented a 2.1 percent increase in January 2021.

USPS faces severe mail delivery challenges this Christmas season, as it did last year. Seeking a third increase in a year, in January 2022 on top of price hikes the past year of 9 percent, might put USPS under intense public scrutiny, particularly if there are pressing service delays again this holiday season. This might be the tipping point for Congress coming down hard on USPS for poor mail service.

Furthermore, USPS’s request is audacious as it suggests that the U.S. Postal Service thinks it is more important than senior citizens or those serving in the Armed Forces.

Senior citizens living on a fixed income must wait a full year before getting an inflation increase in Social Security benefits in January. Those in the Armed Forces receive an annual payment adjustment once a year, also in January

Mail delivery is a public service, a government monopoly-provided service. The public depends on USPS for mail delivery, but it has many other options for package delivery. Given that first-class mail has consistently been USPS’s most profitable product, the public should get a break on these prices, especially at a time of soaring inflation.

About the Author: Paul Steidler is a Senior Fellow with the Consumer Postal Council, an Arlington, Virginia organization that examines trends and best practices among postal services.