Inflation Drives Postage Higher; No End In Sight

mail volumes

WASHINGTON, DC — The U.S. Postal Service filed notice with the Postal Regulatory Commission (PRC) for postage rate hikes to take effect July 9, 2023 (click for rates).

The increases vary, with First-Class and Marketing Mail letters rising over 5% and flats over 7%. Hit the hardest is Marketing Mail Parcels, rising 20.4%.

Rate-hike-weary mailers and shippers will have endured three hikes in one year — last July and this past January — if the coming July increases are favorably reviewed by the Commission.

A big culprit: inflation.

In its July Rate Hike Review, the USPS noted the increase in CPI for the year ending March 31, 2023 was 4.8%. It said that COLA increases in FY21 and FY 22 were some of the highest ever.

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

The OIG report, titled “Inflation and the U.S. Postal Service” was issued last August. It details the myriad ways inflation creeps into prices. The biggest is employee cost-of-living adjustments.

Labor costs accounted for more than two-thirds of USPS expenses in 2021. And that’s not including future liabilities for retirees and workers compensation, which was almost 10% of 2021 expenses, the OIG found.

“Price increases for market dominant products, such as First-Class Mail, are also directly tied to inflation, albeit with a lag,” the OIG reports. Products and services the USPS buys are also affected, but the immediacy of the impact depends on contract terms.

Inflation and Revenue

“During periods of high inflation there can be a delay between when USPS incurs costs of inflation and when market dominant prices are adjusted to reflect these increases,” the report states. “Inflation’s impact on revenue from market dominant products also depends on how customers respond to price increases and how their response affects mail volume.”

The OIG states that “if a recession followed the current period of high inflation, the overall economic distress could have a considerable and adverse impact on mail demand, as occurred during the Great Recession, from 2007 to 2009.”  (See graph above).