Top postal economist predicts annual stamp-price increases

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Today's stamp-price increase marks the first of what may become annual rate hikes, according to Dr. Charles Guy, former director of the U.S. Postal Service's Office of Economics and Strategic Planning.

An average 7.6 percent postal rate increase takes effect today.

More specifically, on average, First-Class letters and cards increased 6.9 percent; Standard advertising mail (9.5 percent); Parcel Post (16.6 percent); Priority Mail (13.5 percent); and Express Mail (12.5 percent). Periodicals rates are scheduled to go into effect July 15.

"If the Postal Service does not address its ballooning costs, stamp-price increases could become regular events," said Mr. Guy, who is now an adjunct scholar with the Lexington Institute in Arlington, VA.

Recent legislation requires the USPS to keep future rate increases within the rate of inflation, a mandate that Postmaster General John Potter recently called "extremely challenging" during Congressional testimony.

"Although the Postal Service is now required by law to keep price increases under the inflationary cap, it will not succeed in doing so unless management can find new ways to rein in labor costs," Mr. Guy said.

About 80 percent of USPS spending goes toward labor costs, compared to about 50 percent at private firms, he said.

"Any effort to cut costs must take into account the significant resources devoted to labor," said Mr. Guy.

For Mr. Guy, potential solutions include greater labor flexibility for postal managers; the phasing out of contractual no-layoff provisions; greater pay flexibility, including the introduction of market wages rather than premium wages for new hires; and pay scales that take into account regional differences in the cost of living.

The last rate hike was in January 2006, when First-Class mail prices rose from 37 cents to 39 cents.

"Unless the Postal Service launches real labor reforms, stamp-price increases will continue to be an all-too-common occurrence," Mr. Guy said.

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