Despite progress on shelter inflation, core services excluding shelter (the "super core") remain sticky. This persistence, linked to wage components, is a primary reason the Federal Reserve will likely pursue a gradual pace of interest rate cuts rather than a more aggressive easing policy.

Contrary to Norway, Sweden faces significant downside inflation risks. A forthcoming VAT cut in April, combined with large basket effects between March and May, is expected to push core inflation towards 0.5%. This will significantly undershoot the Riksbank's forecast and intensify pressure to ease monetary policy.

Following a major inflation surprise, the Norwegian front-end rates market rapidly priced out approximately 40 basis points of expected easing. J.P. Morgan's analysis concludes this significant move was a justified reset to a more realistic "on hold" policy outlook for 2026, rather than a speculative overreaction.

The Fed uses slow, imprecise methods like household surveys to measure key inflation components like rent. This creates a significant lag, causing them to be late in both recognizing rising inflation (as in 2021) and seeing its decline, resulting in harmful policy errors and misallocation of trillions.

The market is pricing 50 basis points of easing from Norges Bank by the end of 2026. However, strong growth, a solid labor market, and high inflation suggest the central bank will not deliver these cuts, implying that front-end Norwegian yields are biased higher.

Norge Bank's forecast includes an implicit easing bias, but strong demand, persistent inflation, and fiscal easing make actual rate cuts improbable. The market is currently overpricing the likelihood of the central bank delivering these cuts.

History suggests that if inflation remains high for too long, it can alter public psychology. Businesses may become less hesitant to raise prices, and consumers may grow more accepting of them. This shift can create a self-perpetuating feedback loop, or 'snowball' effect, making inflation much harder for the central bank to control.

Contrary to the consensus view, Crossmark's Victoria Fernandez is concerned about resurgent inflation. She points to recent increases in housing price reports, noting they typically lead rental price increases by about six months, signaling future pressure on a key inflation component that the Fed may be ignoring.

The disinflationary impact from goods prices has largely run its course in emerging markets. The remaining inflation is concentrated in the service sector, which is sticky and less responsive to monetary policy. This structural shift means the broad rate-cutting cycle is nearing its end, as central banks have limited tools to address services inflation.