Company profits (excluding Telstra, because it was not in the previous numbers) have risen by a further 2.1 % from record levels.

Job ads have risen by 40% in the past year. Share prices regularly set new records. House prices have again begun to rise after a “correction” hardly worthy of the name, except, perhaps, in the outer suburbs of the former boomtown, Sydney. Household credit and household debt are growing far too strongly for comfort.

Taking a longer view, house prices have soared, share prices have rocketed, resource company shares have glowed in the dark, but consumer prices are subdued. The graph shows the extent of the dislocation between asset inflation and consumer inflation in Australian markets.

Take a moment to reflect on the magnitudes involved. Each price index is set at a value of 100 in June quarter 1986. By March 2007, consumer prices have slightly more than doubled, implying annual goods and services inflation of 3.8%. Over the same 21 years, average Australian house prices have risen by 450%, the share price index has risen by a similar 480% while shares in BHP Billiton have soared by a massive 1150%.

While the outperformance of BHP Billiton shares may in part, perhaps large part, ascribed to the “China boom”, other asset prices have risen by an order of magnitude faster than prices of goods and services.

This is a common theme around the world. China share prices have been rising almost vertically. In the mighty USA, analysts worry about the next share-price correction and the current house-price correction, and in other nations strong asset inflation co-exists with subdued consumer goods and services inflation.

Extreme asset inflation with subdued consumer inflation is a global phenomenon. Is it also a global problem? This is a big question for modern central banks, and we encourage independent directors to ask RBA governor Glenn Stevens and his team for their answer at today’s meeting of the board.

Henry’s answer is that we need to be concerned because extreme booms in any market are followed by busts. The inevitable global asset price bust will create substantial misery.

This much is certain. The uncertain factor is timing. What an irony if Rudd’s Labor won government only to be punished by an asset crash that would condemn it to another long stint in the wilderness.

Read on here — Henry’s advice for the board of the Reserve Bank published, as usual, on the morning of its monthly meeting. “Easy money has fuelled a global asset boom and could end in misery unless central bankers act now.” 

Read more at Henry Thornton.