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. That’s done and dusted. We know those prices are coming through,” she said.

She is right.

The big question is, why increase rates – causing misery to millions of households – if it won’t impact inflation?

According to Bullock, it’s to fight inflationary expectations. If people expect inflation is going remain at a high level that can lead to higher inflation.

If businesses believe that inflation is going to stay at 4 per cent for a long period of time, they are going to assume that their costs are likely to rise by about 4 per cent. That means they are going to be comfortable increasing their prices by 4 per cent.

If lots of businesses raise prices by 4 per cent, inflation is more likely to go up, since inflation is the average of how much businesses decide to increase prices.

The RBA hopes that by increasing interest rates, even though it will do nothing to fight inflation, people will think, “Wow, the RBA is really serious about bringing inflation down. They’re so serious that they’re willing to increase interest rates even when it won’t do anything. If the RBA is really that serious, I’m going to assume inflation is going to fall soon”.

Causing pain now to make the point that you’re serious is an odd strategy for a branch of government.

Sometimes we need to suffer for a situation to improve. For example, cancer patients go through chemotherapy, despite the terrible side effects, because the treatment is a proven way to beat cancer. But it would be beyond weird if your doctor suggested you have chemotherapy, not because they had discovered any cancer, but just to reduce your expectations that you might have cancer in the future.

Despite this, the RBA is forcing households with mortgages to pay more so that everyone will believe the central bank is prepared to do everything it takes to reduce inflation.

Even if those higher rates won’t reduce inflation.

But we haven’t yet reached the strangest part of all this.

Earlier in August, the RBA released the results of a survey that showed the majority of people (59 per cent) think that higher interest rates increase inflation.

Yes, you read that right. That’s the exact opposite of what the Reserve assumes. It increases interest rates to decrease inflation.

Only about a quarter (27 per cent) of those surveyed thought raising interest rates would decrease inflation. The rest (15 per cent) were unsure.

This might cause the boffins at the RBA to sigh at the general public’s lack of economic literacy, but it should also tell them that their monetary policy strategy is flawed.

If the RBA is increasing interest rates only to lower inflationary expectations, but most people think it will increase inflation, then surely its plan is going to fail.

Higher interest rates will be a signal to most people that inflation is going up, increasing their inflationary expectations. At the very least most people are not going to assume that inflation is going to drop.

If this is the case, then the RBA is increasing interest rates and causing misery for no good reason at all. It won’t reduce inflation, which is driven by the oil price anyway, and it won’t lower inflationary expectations.

The Reserve Bank should be upfront and honest with the Australian people. It can’t reduce the current wave of inflation. It should sit on the sidelines and wait for fuel prices to stabilise.

It certainly shouldn’t be making everything worse by increasing rates.

Matt Grudnoff is senior economist at the Australia Institute