REPORT: How Inflation Impacts USPS

Inflation and USPS

From the USPS Inspector General: In the first few months of 2022, the U.S. experienced the highest inflation rates since the early 1980s. This period of inflation is attributed to elevated consumer demand and supply chain disruptions resulting from the COVID-19 pandemic, coupled with commodity shocks from the war in Ukraine.

As with many sectors of the economy, rapidly increasing prices are a concern for the Postal Service. To determine how inflation affects USPS, the U.S. Postal Service Office of Inspector General (OIG) conducted a qualitative assessment of the impacts of inflation on USPS’s costs and revenue. Our research included interviews with USPS management and industry experts, as well as an economic analysis of postal data.

Click to read full report, Inflation and the USPS

The magnitude and immediacy of the impact of high inflation on the Postal Service vary widely according to the category of costs and revenue. For example, inflation has a direct impact on cost-of-living adjustments (COLAs), which are pegged to the inflation rate.

Price increases for market dominant products, such as First-Class Mail, are also directly tied to inflation, albeit with a lag. USPS can only invest cash in short-term Treasury securities, whose low interest rates do not compensate for inflation.
A primary way that inflation impacts labor costs, which account for two-thirds of Postal Service’s expenses, is through cost-of-living adjustments (COLAs), which are pegged to the inflation rate.

While inflation also affects the cost of products and services USPS purchases in the market, the immediacy of the impact depends on contract terms concerning price adjustments and contract lengths. For example, fuel price increases can have an immediate impact through monthly adjustments to the contracts with suppliers of contracted transportation services … (click to read more)

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