Lessons Learned from USPS’s Requests for Prices Increases to Offset Inflation

The inflation rate in the United States was more than 9% in 2022. This was the highest rate since 1982, and much higher than the rate in recent years. This spike occurred a few months before the law adopted in April 2022 to overhaul USPS’s finances and allow it to modernize its service (Postal Service Reform Act-PSRA, Public Law 117−108, 2022) and 1 year after the USPS published “Delivering for America: Our 10 year-plan” on March 23, 2021 (USPS, Delivering for America: Our vision and ten-year plan to achieve financial sustainability and service excellence, 2021). In this chapter, we will address two domestic rate comparisons to gauge USPS’s response to inflation: USPS’s rate increases for mail and packages and USPS’s parcel rate increases for last-mile delivery to its domestic competitors, FedEx, and UPS. We also describe the debate in the European Union (EU) and in the United Kingdom where postal operators face similar inflation rates. Our basic observation is that unanticipated inflation creates uncertainty that makes planning difficult. This is not a surprising result. A more interesting issue is to what extent price caps make planning more difficult. We present results that suggest price caps add a constraint to the planning process that produces a delayed response to inflation. Yet, it did not appear binding. Both dominant and competitive postal services show a similar lagged response to inflation.