The Australian Competition and Consumer Commission has rejected an Australia Post proposal to increase the price of a standard stamp from 55 to 60 cents.
Demand for Australia Post's monopoly letter services declined significantly between 2007-08 and 2008-09, and Australia Post expects the decline in demand to continue.
"The relationship between demand and costs is a critical issue," ACCC chairman Graeme Samuel said today.
The ACCC recognises that some of Australia Post's costs are fixed.
"However, overall the cost base would be expected to respond as demand declines. The proposed costs of Australia Post in the material provided to the ACCC do not reflect this decline."
Mr Samuel said the ACCC had been unable to determine how Australia Post's demand forecasts were derived.
"Accordingly, the ACCC is unable to agree to Australia Post's proposed price increases at present," Mr Samuel said.
Australia Post said it was disappointed with the decision.
Australia Post spokesman Alex Twomey said the basic postage rate had not kept pace with inflation over the last two decades.
"If it had, the price of the 55 cent stamp would actually now be 70 cents," he said.