The Growing CPI Cap

It may not be good news for ratepayers, but the Postal Service’s authority to raise prices is growing, based on calculations of the statutory CPI cap.

As observers of the ratesetting process are aware, the Postal Service’s authority to increase prices at any given time is based on one of three formulas, depending on how long it’s been since the last price change filing – whether twelve months, more, or less – all using the monthly CPI figures produced by the Bureau of Labor Statistics.  The current trend for the cost of living is upward, so the Postal Service’s rate authority is rising accordingly.

The simplest and easiest to calculate formula is for an annual increase – basically comparing the average of the twelve monthly CPI figures for the period immediately preceding a filing to the average for the twelve months before that.  Though that formula wouldn’t apply now – the USPS filed for its most recent increase last October 12, based on the August 2016 CPI – the monthly calculation is a good indicator of the cap’s trend and, therefore, of how much postal prices could change in the future if that trend were to continue.

Back in December 2015, the cap was only 0.119% – the lowest it had been since November 2009 – but it’s climbed steadily ever since, and the rate of climb is increasing.  From December 2015 through August 2016 – when the most recent price change was filed – the total increase over that span was 0.685% but, in just the following five-month period, the cap grew by 0.551%.  (A revised cap calculation will be possible this week using the February CPI.)

Of course, a lot can change between now and this fall, but the trendline is interesting.  If the Postal Service again were to file for a price change in October, and again used the August CPI, the current rate of change in the calculated cap (about 0.11% per month) suggests that its rate authority at that time could be about 2.1% – more than double what it was last year.

BUT, let’s not count the Postal Service’s chickens too quickly.  Before assuming (or telling clients) that there will be any increase (of 2.1% or any other amount) next October or whenever, bear in mind that (1) there’s no guarantee that the current growth trend in the CPI will continue; (2) the estimate above is solely a straight-line projection based on five of the twelve months’ data that actually will be used (if the filing were to be in October); and (3) this could all be irrelevant if Congress passes a postal reform measure that mandates a 2.15% rate increase as now proposed.

So, as much as it might be interesting to calculate and speculate, taking anything as certain is very premature.

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This post was based on a recent article in Mailers Hub News, distributed to subscribers.

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