With today’s release of the December Consumer Price Index (CPI), the Postal Service’s annual rate cap for the “market-dominant” classes is -0.36%. That's because lower gasoline prices and the economic recession caused the average monthly CPI in 2009 to be below 2008's average.
The law and regulations governing the CPI-based rate cap do not seem to anticipate such deflation. There is certainly nothing that requires the USPS to reduce rates by -0.36% even though the CPI declined. (Nor will there apparently be pay cuts for postal workers whose unions have cost-of-living adjustments in their labor contracts.)
What is not as clear is how the rate cap for 2011 will be calculated. Most likely it will be a matter of comparing this year’s CPI to 2008’s, not the lower 2009 number. That means that a steady annualized inflation rate of 3% this year would yield only a 1.9% rate cap for 2011, and a 5% inflation rate would mean only a 3.0% rate cap.
Under special circumstances, the Postal Service can institute "exigent" rate increases that violate the price cap. Postmaster General Jack Potter says he won't propose those this year, but the Postal Service's budget deficit might increase pressure for such emergency increases.
- Why Potter Is Freezing Postal Rates, And What It Means For 2010: Potter announced a 2010 price freeze for most classes of mail back in October.
- Can the Postal Service Still Afford Periodicals? Why the Postal Service is like an airline with half-full planes.
- Will Postal Rates Decrease Next Year? Laws and regulations governing the Postal Service ignored the possibility of deflation.