Core minus Shelter inflation still looks pretty weak, while shelter inflation remains strong. My position is that shelter inflation reflects a negative supply shock and core minus shelter inflation reflects a negative demand shock. The economy might be strong enough to limp along with no help from the housing sector and with negligible core minus shelter inflation, but the downside risk is significant if it can't.
Looking at the 1 year inflation indicators in the next graph, it might be worth noting that core minus shelter inflation was this low in 2004 when short term rates began increasing and the economy continued to recover (along with inflation). But, inflation expectations were rising then, while they are falling now, and mortgage markets were flying then and are dead now.
We now have 4 months with no cumulative core minus shelter inflation. I think the best hope at this point is coming from FHFA. Clearly the implicit regulatory liabilities banks now have for mortgage credit are stifling. If this can be corrected, maybe it will pull out some pent up housing demand and we will see home prices begin to climb again. If that happens, it's smooth sailing. If it doesn't, it's hard to tell how things will work out in the near future.