Postal Rates

Reader Michael Chmura posed an interesting question today:

The USPS seems to be raising prices frequently. We have another one cent postage increase coming 5/12/08. Can you post a chart for US Postage priced-in-gold?

I was intrigued, and generated just such a chart of US Postage rates in USD cents and milligrams of Gold.

Until the late 1950s, the dollar was fairly stable, and so were postage rates, with the exception of the Great War and blip at the beginning of the Great Depression, where rates were raised, but quickly offset by a devaluation of the dollar. Rates rose rapidly into the early 1970s, peaking at about 62 mg. When the Dollar was uncoupled from gold and rapidly devalued, the rate collapsed to it's all-time low around 7 mg. Between 1980 and 2001, both the postage rate and the value of the USD were climbing steadily, putting postage in gold back into it's historical average region around 30-40 mg.

Since 2001, the value of the USD has fallen dramatically while postage rates have risen only slightly, resulting in some of the lowest real postage rates in US history. Today the rate is about 13 mg; after the rate hike to USD 42 cents on May 12th, the rate in gold will be around 15 mg – still only half the historical average.

What does this mean to us? Well, consider the new "Forever Stamps". Buying them today will save you 1 cent in postage after May 12th, and maybe more if the USPS raises rates again in the future. Such rate increases are pretty much a certainty, but are limited by the recently passed Postal Accountability and Enhancement Act to the rate of inflation as measured by the government's Consumer Price Index. The CPI is notorious for understating the true price level consumers really pay for the things they need, like food, fuel and energy.

Think of it this way… if there had been a "Forever Stamp" available for purchase in 2001 for USD 34 cents, a roll of 100 stamps would have cost 34 USD, or 4.1 grams of gold. Today that roll would be worth 41 USD… but you could buy a new roll of stamps today for only 1.3 grams of gold – about 1/3 the price in 2001!

The "Forever Stamp" would have been a great deal in 1980, but unless you foresee a strong US Dollar in the future, I suggest that you forget the "Forever Stamp" and stick with the "Forever Metal" – GOLD.

Thanks for the excellent question, Michael!

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