Pros and Cons of Linking Postage Rates to the Consumer Price Index

GGD-77-13: Published: Jan 11, 1977. Publicly Released: Jan 11, 1977.

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Positive and negative aspects result from linking postage rates to an index like the service component of the Consumer Price Index (CPI). Several situations were forecast for the price of a first-class stamp between 1977 and 1984, using projections of change in the CPI.

Assuming declining mail volume, forecasts show that by 1984, if postage rates were tied to the CPI, the price of a first-class stamp would be 20 cents; the Postal Service operating deficit for that year would be $4.7 billion and the cumulative operating deficit would be $25 billion. Using the CPI service index, the stamp would be 22 cents, the operating deficit $4.1 billion, and the cumulative deficit $22.6 billion. Assuming increasing mail volume, the price of a first-class stamp would be 20 cents in 1984, but the cumulative deficit would be $19.9 billion if linked to the CPI and $17.9 if linked to the CPI service component. On the positive side, indexing would enhance public understanding of rate increases, allow businessmen to accurately forecast future postage expenses, and simplify the ratemaking process. On the negative side, indexing might increase the amount of the Federal subsidy to the Postal Service and reduce the desire to minimize unpopular rate increases.

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