A Second Look at Postal Hikes

After further study of the issue, I will amend yesterday's prediction regarding next year's postal rates -- and point out a quirk in postal regulations.

I still think next year's rate increase will be below the 5% recently predicted by the chairman of the Postal Regulatory Commission, but I was wrong on one count: If prices remain flat in November and December, the increase would be about 4.3%, not the 3.1% increase I stated yesterday. But I still think the increase will be less than 4% because consumer prices are decreasing.

The amount of the increase in most postal rates will be determined by the change in the average monthly Consumer Price Index for 2008 versus 2007. (I mistakenly understood the increase to be based on the change in CPI from December 2007 to December 2008.)

The CPI has decreased in each of the last three months, including a record 1.0% percent decrease in October. But you ain't seen nothin' yet. With most other prices basically being flat, virtually all of the October decrease was related to energy -- especially the 15% drop in gasoline prices. Gasoline prices have dropped even more precipitously in November -- down 35% from Oct 13 to Nov. 17, according to the Department of Energy -- and are apparently heading even lower. November seems likely to break October's record for a CPI decrease, and the December CPI may be lower still.

A 2.0% drop in November followed by a 1.5% decline in November would yield a rate cap of 3.8% for next year's increases in prices for such classes of mail as Periodicals, Standard, and First Class. It would also make any 2010 increases unlikely: Even if those big drops were followed in 2009 by annualized monthly increases of 5% in the CPI, the average monthly CPI in 2009 would be lower than in 2008 because of the energy-related spikes in CPI this past spring and summer. (Remember a few months ago when the big economic concern was inflation?)

That brings me to the quirk: Although the Postal Service can raise rates each year in accordance with changes to the CPI, there doesn't seem to be anything in the regulations requiring it to decrease prices when the change in CPI is negative. The PRC regulations refer to an "inflation-based" limitation on price adjustments but not to any required deflation-related adjustment to prices.