The Reserve Bank’s Monetary Policy Board is meeting this week to decide if it is going to change interest rates, but a survey that it released last month has thrown its whole strategy into doubt.

The prediction from the markets is that the RBA will leave interest rates on hold.

An unexpected drop in inflation last month reduced the chances of a rise. The drop was driven by a fall in fuel prices in June. But international oil prices jump up and down depending on the latest social media post from the US President.

This is not likely to change soon, as a deal in the Middle East still looks a long way off. Even if there is a deal, volatility in international markets seems likely to continue.

All this highlights that inflation in Australia is primarily being determined by international factors over which we have no control. Since these factors are international, changing interest rates won’t affect whether petrol prices rise or fall.

Increasing interest rates right now will do nothing to lower inflation. Don’t believe me? This is what RBA governor Michele Bullock said back in May, just after she had increased rates:

“These interest rate rises are not going to do anything for inflation in the next six months.........

© The New Daily