Norway's recent, broad-based inflation surprise was significantly driven by rent's increased weight in the CPI basket, now at 29%. This structural factor reinforces the view that underlying inflation is sticky, compelling the Norges Bank to keep policy on hold and lean against rate cuts through 2026.
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.
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.
Although Sweden's yield curve is visually steep, J.P. Morgan advises against betting on a flattening. The position is unattractive due to competing risks: the front-end could rally further on rate cut speculation, while intermediate yields could sell off if unfunded measures are announced in the upcoming April spring budget.