Informal Ruling: Increase in Postal Rates Likely

Postage rates are likely to increase about 1.7% in January as a result of a letter that the Postal Regulatory Commission’s chief lawyer issued today.

When the PRC established its rate-making rules, “little attention was given to the possibility that during periods of deflation, the Postal Service might accrue negative rate authority,” PRC General Counsel Stephen L. Sharfman acknowledged in a letter to his counterpart at the U.S. Postal Service. That’s why the Postal Service sought Sharfman’s advice in how to interpret the law and regulations that limit increases in most postal rates to changes in the Consumer Price Index. (See USPS Seeks Guidance On Its Rate Cap.)

Sharfman’s “informal advice,” which presumably reflects the commissioners’ thinking, basically said that the period of declining prices in late 2008 could be ignored in determining the price cap. The cap is to be based on the difference in the average CPI for the most recent 12 months versus the previous 12 months, he wrote.

The CPI has only increased 0.86% since calendar year 2008, which was the basis for the last round of rate increases. But with Sharfman’s method, the rate cap would be 1.477% if USPS requested increases before the September CPI is released on Friday. Then, it seems likely to inch up to about 1.7% and to stay at about that level for at least a couple of months.

Postmaster General Jack Potter promised not to increase postage rates during 2010, but postal officials seem eager to bump up rates once the calendar changes over to 2011. The Postal Service only has to give 45 days’ notice before announcing price increases that comply with the rate cap. So it seems likely that USPS will announce increases by mid-November, and perhaps as early as Friday, that take effect in early January.

The price cap applies to the “market-dominant” classes, such as First-Class, Standard, and Periodicals. Individual rates can rise far more than the cap as long as the average for the class doesn’t violate the cap.

Increasing rates based on the CPI would not prevent the Postal Service from also filing for another “exigent” (emergency) increase to ease the impact of the recession on its finances. But it would take much longer to get PRC approval for such an increase and then to fight off a likely legal challenge from mailers.

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