The PRC updated a chart yesterday suggesting that next year’s rate increases will be capped at 4.2%, while here at "The Tree" we predicted it would be in the 3.7% to 3.9% range. If you’re budgeting for next year, shouldn’t you go with the official number, rather than one developed by a guy who once predicted that “The Simpsons”, though brilliant and funny, was too weird to catch on with the American public?
Not so fast. Both PRC and “the Tree” are correct.
The PRC chart is not a prediction but a straight calculation. What it shows is that from November 2007 to November 2008, the average monthly increase in the relevant Consumer Price Index (CPI-U) has been 4.2%. But it’s the change from December 2007 to December 2008, rounded to the nearest tenth of a percent, that will determine the rate cap.
The PRC, probably wisely, makes no attempt to project what will happen to CPI in December. Going where bureaucrats fear to tread, Dead Tree Edition’s position is that, because of recent deflation (a 3.5% drop in CPI-U from July to November), the December-to-December number will be lower than 4.2%.
Specifically, consumer prices would have to rise about at least 2.6% in December (an annualized rate of 36%) for the cap to end up at 4.2%. With energy prices continuing to drop and the economy still circling the drain, that ain’t happenin’.
Even if December bucks the recent trend and the CPI-U doesn’t change, the cap would be 3.9%. If prices drop about 1%, the cap would be 3.8%, and a drop of much more than 2% would put it at 3.7%. Here are the relevant CPI-U numbers if you want to check my math:
A final note: The Postal Service also has a tiny bit of "unused rate authority" left over from this year's rate change. The cap was 2.9%, but the average Periodicals increase was only 2.724%, so USPS has an extra 0.176% it could use for Periodicals. That means if the cap ends up at 3.9%, the Postal Service could actually increase average Periodicals rates by up to 4.076%. Standard's unused rate authority is only 0.025%, and the number for First Class is 0.014%.