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USPS projects rate hikes through 2024, signaling bad news for inflation

September 17, 2021, 7:12 PM UTC

The markets got some good news this week as inflation data showed that U.S. consumer prices rose by just 0.3% in August, growing at their slowest pace since February. 

Material and labor shortages plus the slowdown of shipments have all led to an increase in prices for consumer goods and services over the past year as the American economy emerged from its COVID-19 lockdown, and this week’s data indicated those price increases may be beginning to ease. 

But one often overlooked key indicator says otherwise: United States Postal Service rates. The Postal Service thinks inflation is going to continue to soar until at least 2024. In a filing on Wednesday with the Postal Regulatory Commission (PRC), the service said it would now increase prices every six months on mail products (which it calls “market dominant products”). 

Over the past 12 months, inflation reached 5.3%. At the current rate, the Postal Service could increase mail prices by at least 2.65% every six months. 

Analysis by the Consumer Postal Council finds that Postal Service revenue from mail products is about $20 billion. A 2.65% increase in a six-month period would mean $530 million in additional revenue. A 2020 ruling by the Postal Regulatory Commission allows the service to issue rate increases above the rate of inflation, meaning the agency is no longer tied to the consumer price index and can raise rates as it wishes twice a year.  

The agency increased mail prices by 6.8% in late August, after raising them by 2.1% in January. 

Some economists appeared to agree with Postal Service predictions about inflation this week. Economists at Citigroup said that they “continue to see signals both in the details of the inflation report and in other data that broader inflationary pressure will prove more persistent than expected.” A Federal Reserve Bank of New York survey found that consumers expect inflation at 4% over the next three years, its highest level since 2013. 

Still, critics of the rate increase say the U.S. Postal Service should be aiding Americans during periods of inflation, instead of raising prices. 

By comparison, those who receive Social Security checks must wait a full year for inflation increases. Those who serve in the Armed Forces also receive their CPI adjustment annually. 

“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,” wrote Paul Steidler, a senior fellow with the Consumer Postal Council. “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.”

If rates increase again around the Christmas holidays (pending approval from the PRC, the Postal Service has filed notice to temporarily increase rates between Oct. 3 and Dec. 26 by 75¢ for all flat rate boxes and envelopes and between 25¢ and $5 for Priority Mail, Priority Mail Express, and Parcel Select Ground) and inefficiency abounds in mail delivery (as it did last year), Steidler believes that the Postal Service, which is consistently rated the most trusted government agency, could lose favorability and that Congress might finally crack down on the agency. 

The Postal Service reported a net loss of about $3 billion in the third quarter of 2021, compared with a net loss of about $2.2 billion for the same quarter last year. In 2020, the service experienced a 9% drop in total mail volume but a 32% increase in package delivery, largely the result of COVID-19 shutdowns. Rate increases, the service argues, are required to keep it afloat. 

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