Current regulations allow for a CPI, Density Factor, and Non-Compensatory Factor.
Consumer Price Index
The Core Concept: The “Year-over-Year” Average
Instead of looking at a single month’s inflation, the law requires the USPS to look at a 12-month average.
- The Math: You take the average CPI-U for the most recent 12 months and compare it to the average CPI-U of the 12 months immediately preceding those.
- The Result: This “moving average” smooths out monthly spikes (like a sudden jump in gas prices) so that rate increases are more stable.
The Partial Year Calculation (§3030.143)
This is where it gets a bit “mathy.” If the USPS hasn’t used its authority in a full year, they use a Partial Year calculation. Think of it like a “top-off.”
- The Baseline: You identify the “Recent Average” (the most recent 12 months of data).
- The Previous Peak: You look back at the “Base Average” that was used the last time a rate increase was calculated.
- The Gap: The authority is essentially the percentage difference between that old average and the new average.
Simple Analogy: Imagine you have a yardstick. Last year, you measured the “inflation height” at 10 inches. This year, it’s 12 inches. Your new authority isn’t 12 inches; it’s the 2-inch difference between where you left off and where you are now.
The Postal Regulatory Commission posts the current rate authority available at any given month on their website. https://www.prc.gov/
Non-Compensatory Factor
The PRC has granted the Postal Service an optional 2% surcharge to use annually on any class of mail not covering its costs. Currently the only class in that situation is Periodicals. They will not be impacted by the additional claimed cap as they are not participating in the Mail Growth incentive, or eligible to participate in promotions, so in July they should expect a 6.803% increase.
The PRC has mandated that the Postal Service increase the rate of any product that is not covering its cost that is within a class covering its costs by 2% over the class average, while keeping the final authority available to that class at its average.
The products that are under water are:
In Marketing Mail – Marketing Mail Presort Flats (Mxd-5D only) 73.62%
In Package Services – Alaska Bypass 78.43%
Absent this year from the list again is Marketing Mail Carrier Route Flats, now showing cost coverage at 133.20% (FY23 they were at 98.58%, FY24 they were just over 100%).
Marketing Mail flats should expect a 7.7% increase, and Alaska Bypass a 6.8% increase.
Density Factor
The math behind the Density Factor is based on a simple but painful reality for the USPS: The number of delivery points (houses and businesses) increases every year, but the number of mail pieces decreases.
- Fixed Costs: The USPS has to drive to every house 6 days a week, regardless of whether they are delivering 10 letters or 1 letter. This “last mile” cost is mostly fixed.
- Yearly the delivery points continue to grow approximately 1.5 m, while mail volume continues to decline.
- The Calculation: The “density” is measured as Volume ÷ Delivery Points.
- The Impact: If the density drops (meaning there is less mail per mailbox), the USPS is legally allowed to increase prices by a calculated percentage to cover the higher “per-piece” cost of delivery
Understanding Additional Claimed Cap – Gray Bar
- With each rate filing the USPS under current regulations has a Price Cap, that cap includes: CPI and the additional rate factors of Density and Non-Compensatory.
- Once that total amount is calculated the change in revenue received should average to that amount.
- When USPS sets price cells (e.g. 5-D Letters, MxdADC Flats) at the total cap space, and mailers use incentives and promotions the final net postage paid is lower than the total cap, so USPS does not realize that expected postage revenue.
- If the total dollar value of promotions, discounts, and incentives are the same as the prior year, then the gray bar would be 0%
- If the value is less than last year, then the gray bar will be negative. Otherwise it will be positive.
- The current projection considers the estimated effect of the Mail Growth Incentive program and Promotions/Incentives, with the value of 2025 relative to 2024.
- First-Class gray bar is currently +0.2% (may change slightly before April filing)
- Marketing Mail gray bar is currently +0.9%(may change slightly before April filing)
- For the July 2025 increase, USPS paid out $500 Million in Mail Growth Incentives (MGI) from the 2024 Incentive as well as promotions, this was higher than any other year – so the gray bar was 0.715% for First-Class and 3.015% for Marketing Mail.
- The amount paid out for the 2025 MGI is comparable to slightly lower, so that ‘additional cap’ is not as large.
- Add-Ons were first used in promotions and added the new space.
