Potter Doesn't Want to Hike Postage Rates in 2010

Postmaster General Jack Potter has been telling mailers’ groups in recent days that he does not plan to raise postal rates next year, a reliable source tells Dead Tree Edition.

Worried that price increases would backfire and cause mail volumes to drop further, Potter is telling mailers that any increase in 2010 would be “very small,” the source says. Mailers are interpreting that as at most 2% to 3%, which would mean a one-cent increase in the price of the First Class stamp.

In a question-and-answer session today at the National Press Club, Potter said a decision about rate increases would not be made until after the first of the year and noted that such increases can be counterproductive if they reduce volume. He also hinted in a radio interview Tuesday that "exigent" (emergency) rate increases were not in the plans.

"If you think about the price of a First Class stamp being capped at the rate of inflation, you can do your own math," Potter said on The Diane Rehm Show. "Figure out what inflation will be between now and whatever date you pick and that's likely to be where the price of a stamp will be."

By law, USPS can increase rates for most mail classes each May by the previous year’s average change in the monthly Consumer Price Index. But with the CPI still below where it was a year ago, USPS has almost no chance of being able to institute such inflation-based price increases next year. (The annualized inflation rate for the rest of this year would have to be about 6% for USPS to get any inflation-based price increases in 2010.)

That has led to fears that the Postal Service would institute exigent rate increases to close its budget gap, which Potter said today was more than $3 billion in the fiscal year that ended Sept. 30.

“Without a big change in the way we’re required to do business, we’re likely looking at a deficit of more than $5 billion – for years to come,” Potter told the National Press Club today. Among the possible changes he mentioned were five-day delivery, reducing costs, ending the pre-funding of retiree health benefits, entering new businesses, and government subsidies. But not price increases.

Increasing postage rates by about 7% would close the $5 billion gap -- if it didn't hurt mail volume. But large rate increases in recent years, such as one for lightweight catalogs, have caused mailers to shift marketing money away from mail to less expensive digital formats like email and Web marketing.

Even a small exigent rate increase could undermine confidence in the Postal Service, thereby hastening that exodus from mail. And because most of the Postal Service's costs are fixed regardless of volume, less mail hurts USPS revenues far more than it reduces costs.

For more information, please see:

• Deflation Will Keep Postal Rates In Check -- Maybe: How declining costs in the economy as a whole are hindering USPS's ability to raise prices.
  
• Postal Officials Ponder Emergency Rate Increases: More information on exigency-based rate increases.
• USPS Playing "Let's Make A Deal": Why special price discounts like the Summer Sale are profitable for the Postal Service
  
• Can the Postal Service Still Afford Periodicals?: Even low-priced mail is profitable at the margin for USPS.