Higher postage rates add to consumers' pain

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Gas prices are skyrocketing, food is going through the roof. And to add insult to inflationary injury, it will soon cost more to pay your bills.

On Monday, almost all postal rates will increase.

"We're trying to send out as much as possible before it hits," said Albert Munez, 25, standing in line Thursday at the main post office in Pasadena. At his feet was a large rubber tub stuffed with packages containing vintage Porsche parts that his company sells.

It's not a huge rate hike for most people -- just a penny for a first-class domestic letter, more for most packages and foreign mail. But at a time when other prices are on the rise, the postage pinch gets more notice.

"Every little bit hurts," said Jimmy Moore, 24, who was balancing several large envelopes in one hand and text messaging on his phone in the other.

Moore, who was sending out promotional material on the water filtration equipment he sells, works solely on commission. "I spend $20 to $30 a day on postage," he said. "The extra I will have to pay has to come out of somewhere."

For big corporations, the hike is magnified. The rental DVD company Netflix sends an average of 1.9 million packages per weekday and gets the same amount back. It pays shipping both ways.

But there are two factors that make this postage hike a bit less painful. It will be the first under the Postal Accountability and Enhancement Act, passed in 2006, that made rate hikes predictable. The law allows the U.S. Postal Service to raise prices once a year and in most cases at no more than the rate of inflation.

The increase in costs coming Monday amounts to just under 3% for most popular mailing services. And in accordance with the law, the Postal Service had to announce the changes at least 45 days in advance. (It actually beat that goal, announcing this rate hike in February)

"Everything is costing more these days," Netflix spokesman Steve Swasey said. "But in this case we were able to plan for it. We worked it into our financial guidance."

The other major change was the Forever stamp program. These stamps, depicting the Liberty Bell, cost 41 cents each -- the current first-class postal charge.

But as of 12:00:01 a.m. on Monday, the stamp's value, and purchase price, suddenly shifts to 42 cents. In fact, as a "forever" product, those stamps can be used for first-class mailing no matter how much rates go up. They are like insurance against future rate hikes.

Over the last several weeks, Todd Barber, an engineer at the Jet Propulsion Laboratory, bought 10 Forever stamp books, each with 20 stamps.

"I'm getting prepared," Barber, 41, said. "I guess it goes along with the title 'engineer.' "

He said he would probably buy more this weekend, for good reason.

"I feel the real pinch at Christmas," he said, "because I send out more than 400 cards."

The new way of setting prices marks a major shift for the postal service, a hybrid organization that gets no tax dollars, yet all the workers are government employees.

"For more than 30 years, we have had to operate on a break-even basis," said Joanne Veto, spokeswoman for the postal service. "The new law allows us to make a profit."

The potential for profit comes from what the postal service calls its competitive products, including its Express overnight service and expedited Priority Mail. For these it has major competitors, including Federal Express and United Parcel Service.

The competitive postal service products, which make up about 10% of its volume, don't have to adhere to inflation-based pricing. They can cost whatever the market will bear, although to keep them from being unfairly low, the revenue from these products has to contribute about 5% to the postal service's overhead. Prices for competitive services also can change only once a year, which is a disadvantage in turbulent economic times.